The Importance of a Financial Safety Net…
Have you ever been hit with an unexpected expense that left you scrambling for cash?
It might be something minor, like an emergency trip to the dentist, or something more serious — such as losing your job. In either case, having a financial cushion can make a world of difference.
An emergency fund helps you avoid costly short-term debt and protects your investments by sparing you from selling assets like stocks or bonds at the wrong time.
Here’s what you should know about building and managing an emergency fund.
How to Start Saving for an Emergency Fund
You don’t need to set aside a huge sum all at once — small, consistent contributions can go a long way.
Starting with just $20 a week adds up to over $1,000 in a year — enough to handle many common financial surprises.
Here are some tips from ASIC’s MoneySmart to help you grow your fund:
Open a separate high-interest savings account to keep your emergency money separate from everyday spending.
Automate your savings by setting up regular transfers or asking your employer to direct a portion of your pay into the fund. This “set-and-forget” method makes saving effortless.
Consider an offset account if you have a home loan. It gives you quick access to your money while reducing the interest on your mortgage.
Use windfalls wisely — tax refunds or bonuses can be excellent opportunities to give your emergency fund a boost.
How Much Should You Save?
The ideal size of your emergency fund depends on your expenses and personal situation.
ASIC’s MoneySmart suggests aiming to cover at least three months’ worth of expenses. You may want to save more if you’re concerned about job security or have caregiving responsibilities.
When setting your target, review your insurance coverage and reassess your emergency fund regularly — especially if your financial situation or spending habits change. And if you dip into it, make a plan to replenish the fund as soon as possible.
Where to Keep Your Emergency Fund
We break emergency expenses into two main types:
Spending shocks — like a dental emergency or car repair — can happen anytime, so keep these funds easily accessible in a savings account.
Income shocks — such as a job loss — are less frequent but costlier and longer-lasting. For this portion of your fund, you might consider a diversified investment portfolio in a taxable brokerage account for higher potential returns.
Keep in mind that invested funds carry risks, including market fluctuations and tax consequences when selling appreciated assets. While not as liquid or stable as cash, these investments can still support your long-term resilience and financial goals.
By maintaining a well-structured emergency fund, you’ll be more confident in facing life’s surprises — without derailing your finances.
Rick Maggi, Financial Advisor Perth, Westmount Financial
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Disclaimer
This document has been carefully prepared by Westmount Securities Pty Ltd (ABN 42 090 595 289, AFSL 225715) for general information purposes only. However, neither Westmount Securities Pty Ltd nor any of its affiliates guarantee the accuracy or completeness of any statements contained herein, including any forecasts. It is important to note that past performance is not a reliable indicator of future outcomes. This material does not consider the specific objectives, financial circumstances, or needs of any particular investor. Therefore, before making any investment decisions, investors should assess the relevance of this information to their individual situation and consult professional advice, taking into account their unique objectives, financial position, and needs.