June 4, 2020
They say to have money kept aside for a rainy day – but how much emergency savings should you have? Let's take a look…
Your parents have probably been telling you to have money set aside for a rainy day since you were a child… but just how much money exactly? A few hundred dollars? A few thousand?
Having any sort of emergency fund is a great idea, as it allows you to have money set aside that you can dedicate to unexpected costs – whether it be car repairs or a sudden veterinary bill for your pet. This financial safety net also ensures that you don't have to take out a loan should anything happen to you or your family. But just how much should an emergency fund be?
If you're asking yourself "how much emergency savings should I have?", speaking broadly, it's recommended that individuals have at least 3 months' worth of savings.
This fund would generally be used for those unexpected surprises we mentioned earlier, 3 three months of savings can also help you to pay rent and buy groceries should you find yourself out of work or needing to take time off work for any reason.
This means, calculate how much your absolute essentials cost you – rent, groceries and other bills – over a 3-month period, and aim to have that money set aside for an emergency.
If you have a family or dependants, you may want to increase the amount to 6 months' worth of savings.
When it comes to emergency funds, the most important thing is simply to start saving for one!
If you're looking long-term, you could begin with putting away a small amount of money each week, even if it's just $20 or $30. This accumulates over time to a surprising amount of savings – around $1,500 per year if you decide to put away $30 a week.
There are a few other tricks you can use to help save money for an emergency fund.
Having different accounts set up will help stop the temptation for you to dip into your emergency funds. If you can have an account for everyday spending, an account for savings, and an account for your emergency funds, then you can better keep an eye on your money.
Whichever account your wages are paid into each month (or whatever your pay cycle might be), set up an automatic transfer from there to your emergency savings account. Setting up automatic payments is a great way to set and forget, but you'll also know that your emergency fund is growing.
If you receive any one-off payments, consider placing them into your emergency funds account. Tax returns are a good example of this (even though it can be very tempting to spend it!).
If you have a home loan, take advantage of your offset account by using it as your emergency funds account. This means you'll be paying off you home loan and creating a reservoir from which you can draw money in emergencies.
Don't neglect other important accounts just to fill up your emergency funds. It's still important for you to save for that holiday you've been wanting to take!
If you need cash for an emergency situation but don't yet have an emergency fund set up, Sunshine Loans can help. Apply with us today for a speedy loan of up to $2,000 and put your mind at ease.