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How to spend your rainy day fund (wisely)

Published 30 July 2020

Saving for a rainy day isn’t about short burst of sacrifice, but long term saving strategies to develop financial resilience.

Okay, so you’re one of those people who has their ducks in some kind of row. Maybe you’ve got a solid savings plan, a good array of assets or a bit of money tucked away in an emergency fund - ready for the day that the ground shifts beneath you.

The question now is how to spend that money wisely when a crisis does hit? Should it go towards paying off debt first, or stockpiling supplies? What about investing in new assets, or applying for more credit?

ANZ Financial Planner Scott Riddell has one golden rule: “Spending from an emergency fund should be just that – for emergencies only.”

What constitutes a crisis?

There’s no need to crack open your umbrella if it isn’t raining. Scott’s advice is to ask yourself one question before you access your rainy day funds: “Is this critical to supporting you or your family? Really think about what is a ‘need’ and what is a ‘want’. The latter can be done without.”

It can be hard to figure out which payments are urgent, and which can be deferred. But some events that could call for dipping into your savings include:

  • Unexpected medical expenses for you, a pet or a family member
  • Critical repairs to your house or car
  • Replacing important items such as household appliances
  • Day to day expenses if your income dries up

How to make your funds go further

“In most cases, emergency funds are used as a one-off bulk payment for your urgent need,” says Scott. “But, if that need is due to loss of income then paying yourself a regular, budgeted income from the fund could help to avoid depleting all your savings, rather than continually dipping into them.”

The first step is always to review your budget and strip out any unnecessary expenses. “Your emergency funds should only be supporting the necessities - and adjusting your budget can help that money travel further.”

Lastly, is there an ideal amount to have in your rainy day fund? According to Scott, “this really depends on your ongoing expenses and level of debt repayments. Aim for six months’ worth as a minimum.”

So start squirrelling away that money and don’t forget to keep your rainy day fund separate from your long-term goal savings account – this will help it last through the storm.

Remember, do what is right for your circumstances, needs and objectives.

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For more tips on making the most of your savings and to use our savings calculator, head over the ANZ Financial Wellbeing Program.

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The information set out above is general in nature and has been prepared without taking into account your objectives, financial situation or needs.  Before acting on the information, you should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs. By providing this information ANZ does not intend to provide any financial advice or other advice or recommendations.  You should seek independent financial, legal, tax and other relevant advice having regard to your particular circumstances.