Forget saving for a home deposit. Our biggest financial goal for 2021 is building up a ‘rainy day’ savings fund, according to ME Bank research.
A survey of 1000 Australians conducted by the industry super fund-owned bank reveals building our stash of emergency savings is now our No.1 financial priority, having overtaken saving for a house and other big-ticket items such as a holiday or car.
Two-thirds of survey respondents agreed that “COVID-19 had enlightened them with the importance of building up ‘rainy day’ savings” – a result welcomed by ME general manager of personal banking Claudio Mazzarella, who said past research showed 21 per cent of Australian households had less than $1000 squirrelled away.
“In uncertain times it pays to focus on what you can control,” he said.
“Growing a stash of emergency money can be good for your bank balance – and your peace of mind.”
But how much is enough?
There’s no one-size-fits-all answer.
Glen Hare, co-founder of financial advice firm Fox & Hare, said it’s unsurprising that families are looking to save more money during a period of extreme economic uncertainty.
He told The New Daily the general rule of thumb is to set aside roughly three months of fixed expenses.
Meanwhile, Bravium founder Scott Farmer said it depends on how much risk households are willing to carry.
“When you think about this safety net, what you’re effectively doing is having a resource that gives you a certain amount of capacity to reduce the risk of an unexpected expense damaging you,” he said.
“So think about what rainy day expenses you might incur – like whether your car breaks down – and the secondary consideration is to assess your financial position, and how much money you may need to cover yourself in the event you need to find a new job.”
Mr Farmer said people should prioritise their fixed expenses – including their mortgage repayments, energy bills and food – when calculating how much they would need to see them through a redundancy.
Intuitive Money’s Fran Hughes said if there’s enough breathing room, workers should direct $20 to $30 of every $100 earned into an emergency bank account.
Families should also shop around for better deals on their home loans and utilities, as the savings made could be used to bolster their fund, she said.
Ms Hughes told The New Daily workers can seamlessly add to their rainy day fund by automating transfers from their regular savings account to their emergency fund.
“The rug can be taken out from under workers at any moment, so having peace of mind rather than relying on a lender when times get tough is crucial,” she said.
Tips to establish and grow an emergency fund
- Settle on a goal (should the fund cover three or six months of expenses?)
- Find ways to reduce spending (i.e. cut back on takeaway coffees, or switch utility providers)
- Automate payments to your separate emergency fund
- Keep track of the household’s monthly budget and maintain discipline.