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.
There are a number of budget calculators and tools you can utilise to track your spending like the Money smart calculator. We provide a client wealth portal through https://myprosperity.com.au/ which we can talk you through and see if it is right for your needs.
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. Placing more funds in your Mortgage offset account will allow you to reduce the amount of interest you pay on your loan, although if these funds are used the interest charged will go back up.
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 with our Oran Park office.
The material shown in this article is for general information purposes only. It is not intended to be, nor should it be read as specific personal investment or risk advice.
Before acting on any of the information contained in this article you should obtain special advice from a specialist investment or risk professional, which is appropriate to your specific investment or risk needs, objectives and financial situation.
Whilst all care is taken in the preparation of this material, no warranty is given with respect to the information provided, and accordingly no responsibility for errors or omissions, including responsibility to any person by reason of negligence is accepted by RP Wealth Management.
