If we have learnt anything from COVID-19 it’s to expect the unexpected. This year has left us all feeling a little less sturdy than we might like, so having some cash set aside as an ‘emergency fund’ might help to set many Australian’s minds at ease.
As nice as it might be to have a pool of money to draw from, finding the funds to get through an emergency often means compromising somewhere else. Here are a few ways you can reshuffle your finances to be ready when you need to be.
How much to put into an emergency fund This figure will be different for everyone, so rather than thinking of a cash amount, it’s better to focus on a length of time. First, decide whether you need to be covered for a matter of weeks or months. Then look at how much you’re spending on your essential outgoings – mortgage or rent, groceries, medical bills etc. This will help you come to a target savings figure that meets your needs, suits your lifestyle and will give you peace of mind. Accessing some of your finances to set up your emergency fund This is the tricky part, but there are a few things that you can do:
Review your outgoings Many of us have altered our lifestyles this year, so there might be cash that would have usually gone towards taking a holiday, upgrading a vehicle or buying non-essentials that can be redirected into an emergency fund.
Look at your investments Selling investments for short-term cash needs is not ideal – it’s a shame to lose out on the longer-term growth that these assets may bring you. However, sometimes selling off shares is the only option, so make sure you’re prepped in advance about which ones you could do without. If you would like, I’m happy to chat through your portfolio in detail.
Mortgage an offset account Review how your mortgage is structured. An offset account could allow you to access cash quickly in an emergency but remember that this could have an impact on your mortgage repayments. Where to keep your emergency fund The best-case scenario is to have assets that are immediately at your disposal. You might choose to store them in a savings account so that your money continues to grow until you need it. Opting not to have a debit card associated with the account could help reduce the temptation to spend the cash on non-essentials.
If you’d like to discuss setting up or relooking at your emergency fund, please get in touch. Any advice is general in nature only and has been prepared without considering your needs, objectives or financial situation. Before acting on it you should consider its appropriateness for you, having regard to those factors.