Floods and fires, and the rising cost of living are making saving for the future even more of a priority for Australian households. But it’s not all doom and gloom.
Planning and preparation - and establishing a rainy day fund - can help your household handle unexpected expenses, no matter what lies ahead.
What you need to know
The inflation rate rising to 6.1% has seen the cost of living jump in Australia – petrol was at a 14-year-high in March until the government reduced the fuel excise to 22 cents. Trouble is, will expire in September. On top of that our official cash rate is climbing with another rate increase predicted for next month.
If you throw in an unexpected job loss, appliance replacement or an unexpected illness or accident, it wouldn't take much for many of us to run short on funds.
Barefoot Investor Scott Pape recommends having three months worth of salary put aside to give you and your family security.
During covid, Aussies have boosted their emergency funds by a whopping 55%.
An ME Bank survey revealed that less than 25% of us have enough savings to get through a month of unemployment, which is a bit scary.
What you can do
For starters, it helps to know how much you’re spending. Keeping track of all your transactions – either manually or with a special app – will provide the figures you need to put together a realistic budget that you can hopefully keep.
Lots of smart savers set up a dedicated emergency savings account, and have a regular transfer from the account their salary is paid into. It's probably a good idea to time this with you pay day to avoid any temptation to spend it.
Use your offset account facility to store your emergency funds. Compare Club's Home Loan Expert, Matt Gatt explains, "Any money that is held in your offset account is subtracted from the principal you owe when interest is calculated. For example, if you have $25,000 in an offset account and owe $500,000 on your house, interest will be calculated on $475,000. Put the money you save on interest into your offset account to compound this effect."
Another great trick that MoneySmart recommends is depositing your tax refund into your emergency fund. OK – maybe buy those concert tickets you've wanted – and then pop the rest where you can't spend it.
It's also worth adding any extra funds to your kitty – including your work bonus, the coin from renting out your spare room, or if you have the inclination pick up some extra work too. It all adds up.
The bottom line
The peace of mind that comes with having extra cash to cover an emergency is well worth the time and effort.
And remember to celebrate your savings successes. Getting your finances in order shouldn't feel like a chore - it's your financial freedom you're celebrating.
