Financial resilience: How to build a strong emergency fund to save you from the unexpected
Simply put, you can’t plan tomorrow. If life throws you a curveball, would you be prepared for it financially? Let’s say you find yourself suddenly unemployed, or with an unexpected medical bill, what’s your next step? Alarmingly, many individuals’ perceptions of a contingency plan reveal a prevalent low awareness of the importance of having a plan and therefore a ‘deal with it when it happens’ attitude.
Studies from the CBA reveal that more than one third of Australian’s are spending more money per month than what they are earning, and more than 50% of households would struggle to financially navigate a temporary loss of income. With this, one in three households would be unable to pull together $500 in an emergency. Many Australians are consequently feeling ongoing financial pressures in turn affecting their financial confidence and negatively impacting their personal and work life.
A report from AMP states that “Financially stressed employees spend 46 hours per year dealing with personal financial issues at work, compared to only 21 hours spent by financially secure employees. That’s a saving of 3.2 days per employee, per year.”
Without adequate financial resources many individuals lean towards short term solutions to meet their unexpected financial needs, such as high interest personal loans or credit cards. Not only are these short-term solutions temporary, but they are further contributing to a widespread response of financial stress and insecurity.
So how do you get prepared for the unforeseen? It is widely suggested that you should have at least three months of your basic living expenses stored away, allowing the funds and time to financially support yourself and your family while figuring out a plan. However, each individuals’ circumstances are diverse and evaluating the size of an emergency fund should be geared towards individual financial conditions and requirements.
CBA recommends opening up a second account to draw the line between your emergency fund and your everyday account. Setting up an automatic regular transfer between the accounts, often corresponding with your pay cycle, enables you to automate your savings process. Keeping the account topped up and defining what prompts you to dip into the fund are also imperative to achieve a sense of financial resilience. In response to the extensive financial issues that CBA had observed within their customer spending and saving habits, CBA released a range of new saving assistant features to help customers on their journey to financial wellness.
Pete Steel, Executive General Manager of Digital, Commonwealth Bank states “We have a role to play in helping our customers achieve financial wellbeing. In a recent survey we found 73 per cent of Australians want banks to do more to understand their needs and concerns and 72 per cent want their bank to help them manage their finances in a rapidly changing world.”
Overall, the key to an emergency fund is remembering why you started one. For emergencies. Having an understanding of your financial situation and knowing the importance of being prepared for the unexpected is a surefire way to build financial resilience. There’s a place for employers in this strategy too, with financial literacy and wellness support across an organisation. You shouldn’t have to go it alone.