Diana Clement is a freelance journalist who has written a column for the Herald since 2004. Before that, she was personal finance editor for the Sunday Business (now The Business) newspaper in London.
Financial crises come along all too often for many people. If you want to avoid the next one, and the one after that, do this little trick: build up an emergency fund.
Having an emergency fund to cover three to six months of expenses, takes a lot of stress outof life.
If saving seems impossible it’s time to make changes in your financial life. Start by dropping the word “can’t”. Swap it for “can” and look for ways to make it work.
Work out how much your living expenses are for three months. Then divide that sum by a number of weeks or months to determine how much you need to put away to build up your fund. Transfer that weekly or monthly sum to your emergency fund the day you’re paid.
Open up multiple accounts with your bank
Split your accounts into utilities, rent/mortgage, groceries, repayments, emergency account and non-essential spending money. Make sure there is a small sum of fun money, or you will fail. Don’t dip into other accounts when one is empty.
Free up money
Keep a spending diary for a month, jotting down everything you spend, split into categories. Then put your honest boots on and really question every item in that spend. What are really needs, and what are wants?
Start small if you have to. Photo / File
Start small
Even if you can only save $5 or $10 each week it’s a start. Make a game of finding other ways to free up cash for the emergency fund. Could you drop back to a cheaper phone plan, make coffees at work, bring lunch from home or cut subscriptions to name a few?
I rarely see a supermarket trolley, including my own, that doesn’t have a big chunk of non-essentials in it. We fool ourselves a lot in the supermarket. Do you really need baby wipes, chippies, Coca-Cola, squeezies, biscuits, chocolates and processed, premium or pre-cooked food of any kind? Add up what you actually need to spend in the supermarket and stay within that figure each week. That’s an easy way to free up savings.
Don’t buy stuff
Don’t buy new electronics, clothes, makeup or anything non-essential. Make what you have last longer. And if something essential such as a phone does break, replace it with a second-hand one for now until you can actually afford the item in question. Avoid buy-now pay-later like the plague while building up an emergency fund. Your desire to buy items will soon pass.
Ditch Uber Eats
Uber Eats is a scourge of financial wellbeing. Of course, the occasional special treat from your entertainment budget or fun money is fine. But using Uber Eats for everyday eating is not. Learn to eat simply. You’re not going to die of scurvy if you eat baked beans on toast on those nights you can’t be bothered cooking. Look at ditching or downsizing other budget drainers such as vaping and alcohol.
Sell stuff
Pile up any excess stuff around your house that you don’t use and sell it. Put the money in your emergency fund. Likewise, any windfalls that come your way such as tax returns or bonuses can be hived off into the emergency fund. I’ve seen people say they put their Working for Families money or child support into the emergency fund. Do what works for you.
Increase savings when you get a pay rise
Every time you get a pay rise, stop before lifestyle inflation takes over. Assign part of your pay rise to your budget and the rest of it into boosting the emergency fund.
Stay committed
Building an emergency fund requires discipline and perseverance. Stay focused on your goals and resist the temptation to dip into the fund for non-emergency purposes. Over time your savings will grow and provide you with a financial safety net.
Seek help
If you’re only seeing reasons that the steps above won’t work, then find a budget adviser, AKA money mentor, in your community and ask for assistance with managing your money. Mentors are free and are listed on the MoneyTalks.co.nz website. CAP Money and other free financial courses can be very helpful as well.
Finally, pat yourself on the back when you get there. It means next time you have a real emergency you’re covered, and you’re not going to end up in debt and paying interest.
