Protecting the family during financial crisis is of uttermost importance, ensuring you can bounce back when times get tough. A financial safety net is the best way to protect your family in the case of potential income loss or change of circumstances. We will share some essential tips on how to create a financial safety net, or an emergency fund.
No one likes to think about the ‘worst case scenarios’ in life. Unfortunately though, tough times happen to everyone and the best way to make them a little less difficult is to be prepared financially.
If you’re looking to protect yourself and your family and be prepared for a rainy day, here are my top tips to get you started:
- Pay off debt first: There’s no point having thousands of dollars in savings if you have a maxed out credit card. Yes, having savings in the bank can make you feel more secure, but it’s not the best way to make your money work for you. Your savings will earn around 3 per cent interest in a high interest savings account, but you’ll be charged at least 4.5 times that amount in credit card interest. Pay off that debt, then start building your savings account.
- Aim to save three month’s living expenses: A rainy day can come in many forms (illness, job loss etc) and it’s hard to predict how long you’ll need to live off your savings. It’s commonly recommended that you tally up your living expenses for three months and aim to save that amount.
- Save what you can: If three months’ living expenses seems like an impossible goal, just start saving. You’ll be grateful for every cent of your savings if you need it in an emergency.
- Create a plan to make your money grow: If you’re serious about growing your savings, you need to pay yourself first. That means creating a budget and determining how much you can afford to save in each pay cycle. Then, as soon as you do get paid, transfer this amount to your savings account and don’t touch it. Consider it a non-negotiable expense, like your mortgage or your electricity bill.
- Put your savings in a high interest account: Make your money work for you. This means finding a high-interest online savings account and putting your money in there – you’ll earn more interest this way. Leaving your savings in a regular account also makes it easier to spend your savings. Put it in a separate bank account (not linked to your everyday transaction account) to help reduce the temptation!
- Commit over the long term: Creating an emergency savings fund can be a somewhat odd task – the goal is to save money in the hope that you’ll never need to use it. If the worst happens though, you’ll be glad the money’s there. Try to keep this in mind and commit to building up a nest egg for yourself and your family.
Do you have a family safety net or emergency funds set up already? If not, I hope you are going to get on to it ASAP.