The best way to manage financial surprises

The best way to manage financial surprises

Most of us usually save up to achieve goals that make us happy based on where we are in life. Look around, and you'll probably see a friend saving for a car, a colleague for their wedding, and a neighbour for a house. These are all goals that bring us happiness when achieved. But we often forget that while planning for good times is important, preparing for tough times is just as important.

We get it! Thinking about tough times isn't pleasant. But the truth is, life is full of surprises, and it's necessary to prepare for the tough stuff before it messes up your plans and money goals.

To kick things off, we will present a range of challenging financial scenarios that could happen to anyone. Your task is to reflect on these situations and develop strategies to navigate them while minimising potential losses.

  1. You've lost your job 

Imagine your boss telling you the dreaded words, "We need to cut costs, and we've decided to let you go." Would you rely on your parents for money until you find a new job? Keep in mind finding a new job might take a few months. 

  1. Your car has broken down

What if your car breaks down right in the middle of the road at the worst possible moment? Picture this: you've already used up your entire monthly salary, and what's left is just enough for food and gas until the month ends. Would you turn to a friend for a loan? Nobody wants to be that kind of friend, right?

  1. Out of control medical expenses

Suppose you or a family member needs surgery or a medical procedure not covered by insurance. Unfortunately, treatment can't wait until the money is saved up, and pain relievers can't work miracles. What would you do in this situation? 

We understand that these scenarios may have frightened you. That's why we're here to help you ensure you're ready to handle any challenging situation with unexpected costs.

If you're considering resolving this issue by using the money you've been saving up to buy a car or a house or reach a specific goal, it's actually not the best move. While it might fix the immediate issue, it can prevent you from reaching your goal or making that purchase you've been working towards. What's the better solution? It's having an emergency fund!

What is an emergency fund?

What's the first thing you do when the weather forecast predicts a big blizzard? You stock up on bread and heating fuel! Creating an emergency fund is similar to that. You set aside money to be ready for any unexpected financial challenges that may come your way.

Put simply, an emergency fund is money you keep aside to cover unexpected expenses not factored into your usual monthly budget. These could be big expenses like covering your living costs if you lose your job or smaller expenses like repairing a broken washing machine.

Why do you need an emergency fund?

Without an emergency fund, even a small financial surprise can pose an obstacle. It can mess up your finances and lead you to take a long time to bounce back. You might end up using credit cards or loans to cope, which can lead to more debt, especially if you already owe money.

Having an emergency fund is essential to safeguard yourself and your family from unexpected situations. Trust us, it will give you a greater sense of financial security.

How much is needed for an emergency fund?

The amount you need to allocate for your emergency fund will depend on factors like your financial situation, commitments, monthly income, and anticipated unexpected costs. Consider past surprises and estimate your fund amount accordingly.

Alternatively, you can follow the commonly suggested guideline of saving an amount that can cover your living expenses for 3 to 6 months.

How to create an emergency fund?

Creating an emergency fund involves saving a certain amount each month. First, calculate the total needed for the fund. Then, decide how much you want to put aside from your monthly salary.

To figure out your monthly allocation, start crafting a budget covering all your monthly expenses. Once you have a clear view of your spending, you can decide what's feasible for your emergency fund. Remember, deduct this amount at the beginning of the month and let it go out of sight, out of mind!

Where to keep the emergency fund?

It's crucial to separate your emergency fund from other money you've set aside, like those for daily expenses or travel. This prevents accidental spending. Equally important is to avoid holding cash, which might lead to impulsive spending. That said, make sure the emergency fund is accessible for urgent needs.

We suggest opening a dedicated sub account through our mobile banking app for your emergency fund. This makes it easy for you to transfer money to it every month. 

And remember, this money isn't for shopping sprees or vacations. It's meant to protect you from tricky situations and unexpected expenses. Approach it seriously and begin building your emergency fund today!

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