"I'm 19, working full-time and renting. I also have two pets. I'm worried I don't have enough put aside for emergencies. What's a good figure to aim for?"
- Question from Hayden in Kirwan, QLD
Top answer provided by:
Henriette Scheffer
Hi Hayden,
Thank you for reaching out, great question!
When trying to sort out your finances – it makes all the difference when a financial adviser is just one question away.
We’ve all experienced unexpected financial emergencies - like a medical (or vet) bill, a broken appliance, car repairs, a loss of income, or even a damaged mobile phone. Large or small, these types of expenses often feel like they happen at the worst time.
Having extra funds available for emergencies is the first step in starting to save and is key to building a strong financial foundation.
A simple framework for building an emergency fund is:
-Work out how much money you need or can afford to save.
-Break it down to a weekly, fortnightly, or monthly savings target.
-Save it into a dedicated savings account.
-Monitor your progress.
-Re-assess as you go.
Things to think about:
1. Learn from the past: What kind of unexpected expense have you or your family had in the past? How much did it cost? This will give you a good start and may help you set a goal of how much you want to set aside as a minimum.
2. Map your reality: What’s your current cashflow situation? How much do you need for regular expenses and rent? This understanding will allow you to calculate how much you need to set aside so you don’t fall behind on your bills should you experience a loss of income in times of unemployment, illness, accident, or injury. Ideally your plan will enable you to fund expenses for three to six months.
Estimating all your critical expenses, such as: housing, food, health care, insurance, utilities, transportation, personal expenses, and debt, and excluding things like entertainment, dining out, holidays or non-essential shopping, will help you arrive at a realistic goal of how much you would like to set aside for an emergency.
It’s also worthwhile to explore how your existing sick leave entitlements from work and income protection policies (either through your superannuation, or directly with an insurer) fit into your big picture to see if this can give you relief from needing to fully fund it from you own pocket.
3. Covering your furry friends: With your pets, what type of emergency expenses could you expect? Pet insurance is one way to help fund unexpected vet bills, so you won’t have to weigh up whether to go ahead with surgery or treatment. It’s truly hard to imagine losing a pet without the additional worry of not being able to pay the bills. Bills for major surgery and treatment can easily run into the thousands, and especially as there is no Medicare for pets. Asking your vet for more information on possible expenses will help you set a goal for how much you may need to set aside for this.
4. Everyone is unique: Is there anything else you need to consider in your personal situation? How much will you need for this?
If you’re unsure if you can save enough - don't panic. Set several smaller savings goals and start with small contributions. You can simply continue to build on what you have saved by regularly putting money aside for unplanned expenses. Doing this will enable you to recover quicker if emergencies happen so you can get back on track towards your larger savings goals. A well-planned cash reserve will mean you can avoid relying on help from others or different types of credit that can turn into debt. The important thing is that you've started saving with the aim to meet your goals, over time.
Example: How to build an Emergency Fund, a little at a time - over 2 years.
I hope the general information provided in this response will give you a good place to start. I can suggest making personal financial advice a next step on your financial journey.
Kind regards
Henriëtte
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