Looking at your latest bank statement, you might think you’re doing okay. You’ve finally paid off your credit card, and you have enough money in your savings account to buy a few luxuries when you go grocery shopping.
But what would happen in an emergency—an unexpected trip to the hospital, or major damage to your car or house? Would you have enough saved up to pay the bills? Or would you have to use your credit card, and face the nightmare of paying it off all over again?
If credit would be your only option, then you need to create an emergency fund.
The good news it’s not that difficult to do. Just set up another savings account, and then deposit $30-$50 in there every month. If you can, have it transferred automatically when you get paid. Otherwise, treat it as another monthly bill that must be paid.
Two things you need to keep in mind:
- You should only use this money for real emergencies. (A present for an unexpected birthday invitation is not an emergency.)
- While it would be nice to earn some interest, the most important thing is to have immediate access to your funds when you need them. (Unlike an investment fund, where the goal is to maximise your return.)
And how much should you save? Ideally your emergency fund should be large enough to cover your living expenses (rent, food, electricity, etc.) for three months.
Of course, to make sure you have the money to add to your emergency fund you need to know where it’s all going. And that means setting up a sound (and realistic) budget, which isn’t always easy.
But don’t worry. Here at Gill, McKerrow we can help you not only set up your budget, but also stick to it.
So get in touch with one of our Personal Financial Management Team members today, and start taking control of your finances so you can achieve your life goals.