Friday, October 12, 2012 2:07 PM

Do you have an emergency fund?  Do you even know what one is?  If you haven’t heard the term before, you’re not alone but it’s something that every one of us should have.  If you don’t currently have one, here’s how you can go about getting one.

What is an emergency fund?  Basically, it’s ‘rainy day money’ – an amount of money you put aside into a separate bank account, just in case an unexpected expense or disaster arises.

Why should everyone have one?  Simply put, having an emergency fund can save you a huge amount of stress.  Nobody knows what’s around the corner but many of us struggle to find the money we need should we get landed with an unexpected large bill.  Knowing that you have money safely put away for emergencies gives you peace of mind when the washing machine blows up, your car needs a set of new tyres or you are unable to work for any reason.  Your emergency fund means you already have the cash available, so you don’t have to resort to borrowing or using a credit card to deal with the expense. 

How much should I have in my emergency fund?  Ideally, you should aim to have a minimum of three months of your usual expenses or living costs set aside – the more, the better.  If you think this is a lot, ask yourself ‘what if something happened and I couldn’t work for three months?’  If you don’t know how much your expenses usually are, write a list of all the bills and other things you currently spend money on each month, then multiply that by three to get your emergency fund goal figure.  For example, if your monthly outgoings are $2,000 you need to aim to save $6,000.  If you live on $5,000 a month, then you need to make $15,000 your goal. 

That is a LOT of money.  What if I don’t have it?  It takes time for savings to grow.  The important thing is that you start – even a small rainy day fund is better than none at all!  If you want to give your emergency fund a kick start why not hold a garage sale or list some of your unwanted goods online?  Open a new savings account and arrange for a set sum from your pay to go into this account automatically each month.  You won’t notice it go out but it will make a big difference should that rainy day ever come!