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How to deal with unexpected expensesdisclaimer




We're often optimistic about the future, looking forward to an upcoming holiday or buying a new home, but how often are we prepared for the unexpected?

We’ve all been in a situation where we open the mail and ‘lo and behold’ it’s a bill you just weren’t expecting or, your car is in need of expensive repairs that you just didn’t see coming. It can be disheartening to find yourself in a situation where you have to tap into your holiday savings or, load up your credit card to cover an emergency or unexpected expense. 


Not to mention that these events can totally derail your weekly budget for months to come. Depending on your circumstances, one way to prepare for these financial shocks is to start your own rainy day or emergency fund.

What is a rainy day or emergency fund?

A rainy day or emergency fund is a savings stash that you keep aside for an emergency, accident or unexpected expense.

Here are some examples of situations where a rainy day fund could be helpful:

  • Gaps in income due to lulls in work or losing your job
  • Funeral expenses for the unexpected loss of a loved one
  • Medical emergencies and times when your health insurance may not cover 100%
  • Emergency travel for an ill family member
  • Household repairs eg. water heater stops working
  • Repairing or replacing your mobile phone
  • An emergency tow truck when the car breaks down during a road trip
  • Paying the insurance excess from hitting that kangaroo in the hire car
  • A lapse in concentration on the road resulting in a parking or speeding fine
  • Replacing the neighbours window after an unfortunate cricket ball incident
  • Discovering the annual car rego is due again, already!

Why would you want a rainy day or emergency fund?

Having rainy day savings means you're less likely to need to borrow money in an emergency or for unexpected expenses, when you need to access money quickly. It may help you to absorb financial shocks without affecting your savings for that much needed holiday or deposit for your new home.

How much do you need?

Everybody's circumstances are different and so you’ll need to figure out how much is right for you and your situation.  

Some things to consider:

  • How much does your life cost?
  • How long would you need to cope if you had a break in income?
  • Do you have any dependants?
  • What potential crisis could pop up? 

At the end of the day, this is your safety net, so build up enough rainy day savings for you to feel comfortable that you're prepared for what may arise.

How to get started

If you're ready to start building your own rainy day fund, here are some steps for you to consider, depending on your circumstances:

  1. Take a look at your income and regular expenses to see how much you can save
  2. Use a new or existing account to keep your rainy day savings separate from your everyday spending money. It’s good to use an interest earning or offset account  to make the most of your money.
  3. Setting up recurring auto transfers into your rainy day account can save you time and takes some of the effort out of building your savings.

Now, you've got the building blocks for your financial safety net. With regular contributions, your rainy day fund will grow and you can gain some peace of mind that you'll be better prepared when the time comes. 

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Any advice does not take into account your personal needs and financial circumstances and you should consider whether it is appropriate for you.