The hot water service blew up, the dog needed emergency surgery or you broke your wrist and can’t work for 8 weeks. These aren’t life changing financial emergencies, but they can certainly have an impact on your savings – or if you don’t have savings, create or add to your debt.
How much should I keep in emergency money?
Most financial experts will tell you that keeping approximately 3 months’ salary in emergency funds is the safest bet. For the majority of people, this would definitely be sufficient. However, you might need to put aside a little more if you have a lot of debt that you would need to service, you’re in poor health, you have children or are planning on children, or you work in a casual or contract role that could end suddenly. In cases like these, it’s better to plan for a little more money in the hopper, perhaps 5 – 6 months to give you piece of mind.
Keep it segregated
Keeping an emergency stockpile of funds for a rainy day might sound like financial planning 101, but many people neglect the importance of it, or they ‘dip in’ when they need a new couch, a weekend away or some extra Christmas presents. Keep your emergency funds entirely separate from your other savings and everyday living funds, or if you are certain that you won’t use them, keep them in your mortgage offset account if you have one.
Income Protection insurance provides piece of mind
Income Protection is an insurance policy that replaces a percentage of your income if you are not able to work due to accident or illness for a pre-set period of time (i.e. 2 years or until age 65). You will have to satisfy a waiting period before payment commences (i.e. 30, 90 days or 2 years), and also meet the medical criteria for being unable to meet the activities required for your role.
Having income protection doesn’t necessarily negate the need for keeping an emergency supply of funds as it will only help you if you fall sick or injured, but it does create an additional parachute to protect you. An independent financial adviser is the best place to start for a comparative income protection quote, as there are many and varied income protection insurance types in the market, and it is important to get the right policy for your needs.
Review, reformat and reshape
Like any good financial plan or objective, you should regularly review your emergency fund requirements. Circumstances change, and you may find that you need more or perhaps less, stashed aside. If you would like to see an Independent Financial Adviser for a complimentary appointment to discuss your emergency fund requirements, you can contact us here.
Disclaimer:
The information on this site is of a general nature only. It does not take your specific needs or circumstances into consideration. You should look at your own personal situation and requirements before making any financial decisions.