Setting up your own emergency fund
As a general rule of thumb, it’s recommended that 3 to 6 months’ worth of your regular expenses is a suitable amount to have set aside in case of an emergency. So, check your monthly budget or go through last month’s bank statements to estimate the amount you need each month, then multiply that by the number of months you would like to be covered for. This is then your target.
Next, think about when you would like to have that amount saved by – 6 months? 12 months? Take your target amount and divide that by the number of months to calculate the amount you need to save each month. You may need to adjust your target amount, or target timeframe to ensure you can manage the amount required within your budget.
Tips to help you get there
- Don’t make it too difficult for yourself.
- Even if you only start with a small amount, start as soon as possible.
- Keep the money separate from your spending money. You may wish to open up a separate account, or perhaps use an offset account if you have a home loan.
- Set up an automatic payment from your pay or transaction account and continue to add to your emergency fund.
- It may be helpful to reward yourself as you reach certain milestones.
Tips to help you stay covered
- Review your expenses regularly to ensure any increases are also built into your emergency fund.
- Be disciplined about when you use your emergency fund.
- Remember to top it up again if you do need to dip into it.
If it helps, think of your emergency fund as a kind of self-insurance where you control the premiums, the claims process, and the payout.
Knowing you’re covered to ride out a short-term financial pinch helps ease concerns, potentially helping you get a better night’s sleep.