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No matter how old you are, everyone needs a financial backup plan and this is why having funds specifically for emergencies is a great choice. Having an emergency fund is also an important aspect to consider when you are trying to assess your money health.
Getting into a regular habit of putting money aside for a rainy day is likely to be one of the smartest moves that you can make.
One of the advantages of a simple strategy like this is that you will get used to putting a certain percentage of your wages directly into your savings.
On top of this, you will be able to enjoy the satisfaction of watching your savings grow until you have a nice little nest egg.
There are a few reasons that this strategy works quite well.
One way to effectively achieve this is to set up an automatic payment which moves funds from your own bank account into a savings account, as soon as you get paid.
Planning for expenses
There are quite a few costs that you can plan for – but there are always going to be expenses, which pop up unexpectedly.
For example, dental costs – these are ones which often come out of the blue.
A common one for some people is problems with their wisdom teeth.
This can be expensive and when you are in pain the last thing you want to be thinking about is how you are going to afford to pay for it.
Some dentists may have payment plans – however, if you have an emergency fund then you will be able to dip into it to get this sorted.
Why have emergency funds?
Another great reason to have an emergency fund is that you can use it to treat yourself occasionally.
Furthermore, simply having a bit of extra money stashed away will mean that saving for other big purchases such as a house will not be as much of a bother.
One of the traps many people fall into is living a hand to mouth existence which means that they live from one pay check to the next.
This is not an ideal way to live because you are likely to find that you will run out of money at certain points during the week, fortnight or month – depending on how frequently you get paid.
Another apt reason for saving a percentage of your pay is to plan for the unexpected.
In a tight economy, you never know what is around the corner.
Being prepared can help you mitigate those feelings of uncertainty. Knowing you have a little bit of financial security can prevent you from going into panic mode in the instance that something happens.
Having a plan in place in case you have to change jobs will help to get you through the change with ease.
Another example of an unexpected life change is getting married or having your first child.
In the instance that one of these wonderful life milestones occurs – the last thing you want to have to worry about is how you are going to pay for it.
This may be a good opportunity to discuss your options with a financial planning adviser.
As an expert they will be able to set up a financial plan which can help you accumulate funds for a rainy day which allows you to save and also budget to live comfortably day to day.
ipac is one of Australia’s largest financial advisory firms and has offices based across the country. A wholly-owned subsidiary of the AMP Group, ipac specialises in research and financial advice that helps clients lead happier, more fulfilling lives.