You’ve heard of financial emergency plans. But they’re probably treated more like rainy-day funds than true crisis savings. What would happen if you encountered a personal disaster – job loss, a sick spouse or relative – and you needed extra money to get you by?
The standard rule is to have at least three months of savings in the bank to cover your regular bills and daily costs of living in case you or your partner stop receiving an income or experience a problem requiring a large amount of money to solve. The amount you should funnel into your savings will vary depending on your circumstances, but it should normally be at least a few thousand dollars. We advocate having an emergency savings account, which might be for things like home repairs, but it can extend to true emergencies as well.
You can set up a high-interest account so you can actually grow your money while you put it away for a worst-case scenario. You’ll want an account you can easily transfer money from so you access it should a true emergency arise. Many money experts suggest automatically setting up transfers into your savings from each paycheque so you quickly get used to not having that amount at your disposal. You can start small, with just $10 or $20 a week, but eventually, you should bump it to 10 to 20 per cent of your total income. So if you make $75,000 per annum, you should put away at least $625 a month in savings.
If you think you’ll be tempted to take out some of your emergency savings for a new pair of shoes or a pricey concert ticket, draw up a contract with yourself to stipulate exactly what the funds can go towards and what they can’t. Having something in writing will help you hold yourself accountable for your crisis cash.
Do you have an emergency savings plan? Have you ever had to use it?