This one’s going to be short and sweet folks, perfect for reading while you’re on hold with your favourite bank or internet provider.
Emergency Funds are one of the easier financial education concepts to wrap your head around because it says what it is on the packet. Basically, it’s a fund you set up to cover big time unexpected costs like medical emergencies (think burst appendix), home disasters (bye bye geyser), car repairs (what do you mean I need brakes that work) and sudden job loss (hope you took the stapler). The cash in this fund would ideally cover these associated costs, and prevent you from incurring debt by swiping a credit card or taking out a personal loan.
So how do you set one up? Just follow these steps.
Figure out how much you need. Use a budget tool to calculate your monthly expenses, and use that as a starting point. About 3 months worth of funds is a good base, and should cover most emergencies. Anything more than that is even better.
Set up an account to keep your Fund safe. Separating it from your everyday transactional account it a good way to ensure you won’t end up spending it (out of sight, out of mind). You’ll need an account you can access immediately, and one with a good interest rate is a bonus too.
Start saving. This is the hard part, and requires some self control. To make it easier, set up a debit order that goes off the day after you get paid or participate in a savings challenge. There are many examples of these online, and participating in a public challenge can help keep you accountable and provide community support.
If you’ve gotten this far, you’re already nailing it. At this point, you can start adding any “free” money to your fund as well. That’s money that you’ve won, inherited, found or earned on top of your salary. Trust us, future you will appreciate these fund boosts way more than the bottles you popped at the club.
Getting started is the scariest part, but even the smallest amount makes a difference. Just keep plugging away, and you’ll be set up in no time.
Keep it real, keep it debt-free, and keep that appendix safe.
It’s important to note that the examples in this article are meant only to illustrate our point, and aren’t meant as financial, investment, or any other type of advice. For advice about your money, speak to a registered financial advisor.