Rainy day savings: Expert tips to building an emergency fund

Our finance expert, Mitch Alison, writes for OneChoice Life Insurance. 

As Kiwis, we’re known for our "she'll be right" attitude, but when it comes to unexpected bills, it's better to be safe than sorry. Enter the emergency fund – your financial lifeline for those unforeseen moments. Be prepared by considering a foolproof plan to save for emergencies, from budgeting hacks to high-interest accounts. Start building your financial security today. 

Create a savings plan  

First things first, you need a plan. Don't just throw spare change at a generic savings account. According to the Kiwi Concerns Report, 1 in 3 Kiwis have less than $1,000 saved. That may not be enough to handle most financial emergencies. Aim to build an emergency fund that covers at least 3-6 months of living expenses. This might seem ambitious, but with a solid plan, it's achievable. 

Cut out unnecessary expenses  

Sometimes, building an emergency fund requires a little sacrifice. Take a close look at your spending habits . Do you really need that second cappuccino every day from your favourite café? Even small changes can free up valuable dollars to add to your savings.

Here are some tips for cutting out unnecessary expenses: 

  • Review your subscriptions: How many streaming services do you actually use regularly? Look for any subscriptions you no longer use and cancel them. 
  • Cook more at home: Eating out can be expensive. Try to cook more meals at home to save money. 
  • Downsize your phone plan: Do you really need all the data and minutes included in your current plan? Consider switching to a cheaper plan. 
  • Shop around for insurance: Compare quotes from different insurers to make sure you're getting the best deal on your car, home, health, and life insurance. 
  • Negotiate your bills: Contact your internet and phone providers and try to negotiate a lower rate. 

Maximise windfalls and bonuses  

When good fortune strikes, don't blow it all on a fancy gadget or spontaneous trip (although we all deserve a little treat sometimes!). Instead, consider funnelling a portion of your windfall or bonus into your emergency fund. It's a great way to boost your savings quickly and build a buffer faster. 

Why maximise windfalls for your emergency fund: 

  • Rapid boost: Windfalls provide an injection of cash, allowing you to quickly build a safety net. 
  • Wellbeing: Knowing you have a solid emergency fund can help alleviate financial anxieties and promote overall well-being. 
  • Peace of mind: Unexpected expenses? No problem! Your emergency fund is there to handle life's curveballs, giving you the freedom to focus on what truly matters. 

How to maximise windfalls: 

  • Prioritise savings: Allocate a significant portion of your windfall directly into your emergency fund, aiming to reach a healthy buffer of 3-6 months of living expenses.
  • Invest wisely: Consider investing a portion of your windfall in a high-interest savings account or other low-risk investments to earn passive income and further grow your financial safety net. 
  • Debt reduction: If you have high-interest debt, use your windfall to make significant payments or even pay it off entirely. This may help free up additional cash flow that can be directed towards further savings. 
  • Plan for the future: Use a portion of your windfall to invest in your future goals, such as a down payment on a house, retirement savings, or your children's education. 

Remember, maximising windfalls is about striking a balance between enjoying your good fortune and making smart financial decisions that secure your long-term financial health. 

High-interest savings accounts  

Where you store your emergency fund matters. A high-interest savings account acts as your savings supercharger, offering several advantages: 

  • Competitive interest rates: Earn interest on your savings, ensuring your money grows over time. 
  • Easy access: Your funds remain readily available in case of an emergency, so you can access them quickly when needed. 
  • Variety of options: Choose from a range of high-interest savings accounts offered by different banks and financial institutions, allowing you to compare rates and find the best fit for your needs. 

Tips for choosing a high-interest savings account: 

  • Compare interest rates: Research different accounts and compare their interest rates to maximise your earnings. 
  • Consider fees: Some accounts may charge monthly fees or maintenance fees, so factor these into your decision. 
  • Accessibility: Choose an account that provides easy access to your funds, such as online banking or ATM withdrawals. 

By choosing the right high-interest savings account, you can ensure your emergency fund is working for you, growing steadily and providing you with the financial security you deserve. 

Start building an emergency fund  

Building an emergency fund takes time and dedication, but it's an investment in your future self. Remember, even small contributions add up over time. Here are some tips to get you started: 

  • Set a goal: Determine your desired buffer amount and set realistic savings goals to reach it. 
  • Automate savings: Set up automatic transfers from your checking account to your savings account to ensure consistent contributions. 
  • Track your progress: Monitor your savings regularly and celebrate milestones. This will boost your motivation and keep you on track. 
  • Review and adjust: As your income and expenses change, revise your savings goals and contributions accordingly. 

Building an emergency fund is an essential step towards financial security. By taking action today, you can ensure you're prepared for whatever life throws your way.

Preparing for life’s unexpected moments 

By adopting a proactive approach – from crafting a realistic savings plan to cutting unnecessary expenses and wisely utilising windfalls – you can create a financial safety net that's ready for life's unexpected turns. 

By following these guidelines, 'she'll be right' becomes more than just a saying; it's a reality of being well-prepared for whatever comes your way. Don’t forget, you can also protect your family's financial future by considering a life insurance policy which can give yourself some peace of mind at the same time should the worse happen. Click for more information on OneChoice Life Insurance and request a quote today. 

19 Jan 2024