Saving for a Rainy Day!

Why we ALL need an emergency fund

Well, it’s raining outside. So, what better time to talk about saving for a rainy day?

And no, I’m not talking about having enough money tucked away for a rainy weekend when you decide to binge-watch Netflix, order takeaway and avoid the world. Although, let’s be honest, that does sound rather appealing. 😊

I’m talking about having money set aside for life’s little and BIG financial surprises. You know the ones. The car suddenly needs repairs, the hot water system dies, or your dog eats something she shouldn’t (hello Bella!).

I’m also talking about having enough money saved to slot into your personal insurance advice. Enough money saved to take a longer waiting period on your income protection will make a huge impact to the cost of your premiums.

And these are the reasons why everyone should have a rainy day account.

1. Life happens. Your bank account shouldn’t have a meltdown.

Most of us have experienced that sinking feeling when an unexpected bill arrives. It’s never at a convenient time, is it?

Without savings to fall back on, these expenses can mean reaching for a credit card, using buy now, pay later, or borrowing money.

Having an emergency fund gives you a financial buffer. It means you can deal with the problem without necessarily going into debt or derailing your everyday budget.

2. What exactly is a rainy day account?

Quite simply, it’s money you’ve put aside specifically for emergencies and unexpected expenses. An emergency savings fund can also cover unexpected disruptions to your income from sickness.

Think of it as your financial safety net. It’s not your holiday fund, your Christmas shopping account or the money you’re saving for that fabulous new handbag you’ve been eyeing off.

Those things can have their own savings goals.

Your rainy day account is for the things you didn’t plan for but need to deal with anyway. BIG and small.

3. How much should you have tucked away?

If you’re starting from scratch, don’t let the thought of saving thousands of dollars $$$ put you off. Your first goal might be $500 or $1,000. Choose an amount that feels achievable for your circumstances and build from there.

Once you’ve established a small buffer, a common longer-term goal is to save around 3-6 months of essential living expenses.

The right amount will depend on your circumstances. If your income is irregular, you’re self-employed, or other people depend on your income, you may want a larger safety net.

The important thing is to start. Even a small amount is better than having nothing at all.

4. Where should you keep your rainy day/emergency fund money?

Somewhere safe, accessible and separate from your everyday spending account. If you have a mortgage – a separate offset account.

You want your money available when you need it, not locked away somewhere you can’t access without jumping through hoops e.g. NOT a term deposit. If you don’t have a mortgage, a separate high interest savings account without a debit card is best. We don’t need any temptations!

5. How do you build one without surviving on two-minute noodles?

You don’t have to save hundreds of dollars every week or give up every little pleasure in life.

Start small and make it a habit.

• Pay yourself first. Set up an automatic transfer into your rainy day/emergency fund account each payday, even if it’s only $10 or $20.
• Find a little breathing room. Review your budget and see whether there are expenses you can trim without making life miserable. See our budgeting article: https://thewealthlab.com.au/budgeting/
• Put “windfall” money to work. A tax refund, work bonus or unexpected cash gift could give your savings a useful boost.
• Keep going. Some weeks you might save more than others. That’s okay. Consistency matters more than perfection.

And when you need to use your rainy day fund? Deal with the expense, then gradually build your savings back up again.

Don’t wait for the storm

It’s easy to put saving off until you “earn more money”, “pay off a debt” or “finally get on top of everything else”. All of these goals can be achieved simultaneously with a robust budget.

But the truth is, you don’t need to have your entire financial life sorted before you start building a safety net.

Start with what you can afford. Set a realistic goal. Make regular contributions. And give yourself a little breathing room.

Our unsexy strategies article might help too: https://thewealthlab.com.au/boring-financial-strategies-build-wealth/

Because while we can’t control when things go wrong, we can take steps to be better prepared.

A rainy day account won’t stop the rain. But it can make the storm a whole lot easier to weather.

As always, reach out if you have any questions or would like to make an appointment time.

General Advice Warning

The information on this website and the links have been prepared for general information purposes only and does not take into account your personal objectives, financial situation or needs. It is not intended to provide commercial, financial, investment, accounting, tax or legal advice. You should, before you make any decision regarding any information, strategies, or products mentioned in this email, consult a professional financial adviser to consider whether it is suitable and appropriate for you and your personal needs and circumstances.