8 Reasons why an Emergency Fund should be on your Financial Radar
Ever find financial disaster seems to strike at the worst possible times!? Unexpected medical bills, car repairs, home maintenance to name a few dilemmas that pop up when we are least prepared for them. On top of this, you have the upkeep of utility bills, general household costs, groceries and petrol as well as student loan repayments, rent or mortgage payments and more. The difficulty to make ends meet once financial disaster strikes is heightened dramatically and unless we are sufficiently prepared can place us in a critical financial situation. Having an emergency fund put aside specifically for when financial disaster strikes is a wise move. To best combat the expenses that arise – and they don’t come cheap, do they? Three months worth of expenses put aside is a general guide and appears to be a consensus rule from financial advisers across the board. Some even suggest 6-8 months worth! If this appears difficult to manage, remind yourself that any amount put aside will help when financial disaster strikes. The benefits to building an emergency buffer are countless – ranging from the obvious like allowing freedom and greater leeway with our budget through to less thought of benefits such as our mental wellbeing and reduced anxiety that develops with the aid of a cash cushion to support us. We look at some of the key benefits of having and maintaining an emergency fund.
1. Expect the unexpectedA clichéd phrase we know but that is the core construct of an emergency fund. A reserve of money to fall back on when difficulties arise and times become tougher. Needless to say, an emergency fund will not prove beneficial if you dip into the account whenever you’re ‘in need’ of a new pair of shoes or similar. Key point; plan for the unexpected so that you can prepare for when major expenses strike.
2. Brace yourselfAn emergency fund works like a risk management plan. Or an insurance policy. Of course, we don’t want major finances to hit us when we least expect them and when we are vulnerable, but hey, a fund can allow us to brace and prepare for, if and when this does happen.
3. Budget betterThe positive of having a fund aside – be it an emergency fund or not, means we have greater flexibility with our budget. We have identified the typical costs that are prevalent in your budget. Having the bonus of an emergency or rainy day fund means that if (and only if) financial times do become tough then the fund can be used to buffer any financial woes.
4. Mentally satisfyingHaving a financial buffer to support us if and when we are in financial crisis mode is a hugely satisfying feeling. We’ve stated the tangible benefits, but mentally our wellbeing is set to benefit greatly from the financial move. Anxiety, that often brews through a lack of financial confidence will be significantly reduced and the ‘weight of the world’ feeling will be removed from the equation.
5. Create good habitsPutting aside a portion of your income for saving, or an emergency fund alike is a commendable act that will prove invaluable when it comes to achieving your financial goals. We recommend keeping the savings and emergency funds separate from each other but the same principles apply to boost the fund and it would be suggested to avoid touching it at all costs. Furthermore, we even recommend a range of savings accounts that can help you achieve your savings goals.
6. ControlAn emergency fund provides us greater control over our finances. It allows us the financial freedom to make better, informed decisions as to where our money should be allocated instead of forever repaying debt and struggling to make ends meet.
7. Learn from past mistakesYou know how sporting coaches often coin the phrase about ‘learning more from a loss than a win’. In a round-about way the same can apply here. If you have experienced a financial dilemma before, the silver lining is that you can learn from any previous mistakes and work on avoiding these in the future. Enough of work-ons and game of two halves… Aim to pay off debts ASAP, prioritise your spending, stick to (or start) a budget, build a savings fund.
8. Seek assistanceLike any dilemma you are faced with, bottling it up and facing the battle alone is not going to help overcome any issues. There is no shame in admitting when you need a helping hand. If debt is becoming an issue that is getting out of hand for you, perhaps a debt consolidation loan is the solution you are after to better manage and control a financial crisis. Once this step is taken, then look to heed some of the recommendations made here. As with any financial query you may have, NZCU South are here to help.