Let me tell you a story about a girl and her broken car, the girl being my 24-year-old younger self and the car being my 2002 Golf, AKA Silver Sally.
It was a sunny Sunday Auckland afternoon, I was driving Silver Sally to the supermarket – the windows were down, the music was up and life in this moment was pretty good.
I pull up to the traffic lights. Somewhere in between the lines of “ohhhhh, we’re halfway there” and “ohhh ohhh, living on a prayer!”a beat chimes in – it went something like “thud, thud, thud, errrrk” then silence.
Sally was broken.
Literally the only phrase to describe this moment was “Oh fuck”.
Toots were blaring out as I sat stagnant in the middle lane, but I get her started again and head to the nearest mechanics… panic sets in.
Like a fish out of water there I was, standing in my dress and sandals on the oil-slicked mechanic’s floor.
“You alright miss?” the mechanic asks. I explain the situation about my golf…”ok sounds like you’ve got a real problem here!”
“What could it be?” I say, as if just by looking at her he could tell, like some sort of mystical car-reading mechanic.
He lifts up the bonnet, a turn here, a knock there…
“Well it’s hard to say miss, it’s going to take some investigating”.
All these feelings were whirling in my head.
“Investigating? What does this mean?”
“Surely it won’t be that much, maybe she just needs some new oil”
“But what if it’s something bigger, what if she needs major surgery!?”
“I can’t afford this right now”…
My problem, I wasn’t prepared.
Living in Auckland is almost impossible without a car, I needed to get Sally fixed but I didn’t have the money.
I was naive in thinking these kind of situations wouldn’t happen to me, I thought any expense i’d know about ahead of time, but the reality is life happens – your phone breaks, you lose your job, you become unwell, or like me your car kicks the bucket.. it happens to all of us and we NEED to switch our thinking and plan for these emergencies.
After a day of mechanical investigating I heard the news, I needed multiple parts to get Sally going again. The cost, $920 NZD (1/3 of the cost of the car itself), the solution? Put it on the credit card which meant more debt, more hurdles and heading further away from financial stability.
I never wanted this to happen again.
The solution? Build and Emergency Fund.
What is an Emergency Fund?
An Emergency Fund is VERY important to personal finance, because of the very thing its name suggests. It helps you in an emergency.
It needs to be there to help you with life’s hurdles – you lose your job, you get sick, or like me your car kicks the bucket. Without it you cannot have financial stability, full-stop.
How much should an Emergency Fund be?
This varies depending on your living situation, but generally $1,000 – $2,000 is a good place to start.
There are two types of ‘Emergency Fund Buckets’ to aim for:
- Everyday fund: $1k-$2k amount for an everyday emergency.
- Long Term fund: 3-6 months of your expenses for those greater emergencies like job loss or an illness.
If you are paying off debt or have little savings, start with $1,000 and build from there.
How do you save for an Emergency Fund?
Here are 8 tips to help you save an Emergency Fund:
1. Set your goal:
- Set a goal for how much you want to have in your Emergency Fund, and by when?
- These could be daily, weekly or monthly-based goals.
- In my personal experience it’s good to have an end date in mind for your total savings amount, and then break this down into smaller more manageable amounts to save each week or month.
- Be realistic, start small to get yourself in the habit of saving. Then overtime once you’ve developed a good practise of saving you can increase your goal.
2. Keep it separate:
- There’s no point saving for an Emergency Fund if you keep chipping into it for new clothing purchases, and coffees (I can’t deny caffeine is an emergency, but get yourself a good plunger and grinds and you’re cool).
- Keep this fund separate from your checking account, this could either be in a separate savings or bank account.
- Do not put your fund into an investment or Term Deposit that’s too hard to access, as in an emergency you’ll want to be able to access the money right away.
- Remember your Emergency Fund should be hard to reach, but still liquid.
3. Treat it like a bill:
- Treat your Emergency Fund like a bill, make it a non-negotiable.
- Add it to your line items on your budget and stick to it.
4. Extra Income:
- Any additional income you get put it into your Emergency Fund.
- This could be a tax refund, bonus, or gifting money.
- If you put this towards your Emergency Fund straight away you won’t be tempted to spend it on other things.
5. Celebrate key milestones:
- Saving for an Emergency Fund is not easy, it’s a hard slog at times so it’s important to celebrate when you hit key milestones.
- This could be with your favourite bottle of wine, a trip to the movies, or a new coat of nail polish… whatever you choose.
- Having key milestones and celebrating these will keep you focussed and motivated to stay on track.
6. Budget category allocations:
- Take a look at your budget categories and where you are spending your money, and define where you could make changes.
- Think creatively, i.e. instead of going out to restaurants or getting take-out twice a week, try cooking at home.
- By contributing $10 more to your supermarket spend each week and cooking at home, you could save yourself $40 a week on take-out and restaurants, meaning that money can go straight towards your Emergency Fund.
- Then next month change it up. Use Uber a lot? Try taking public transport more often.
- Be creative and have fun with these challenges!
7. Cull unnecessary expenses:
- Additionally to moving money around within your budget categories, take a look at where you are spending your money and cull the unnecessary expenses.
- These could be things like monthly subscriptions, a gym membership you don’t use or buying coffee everyday (tips on how to do this here).
- These small amounts really do add up, and will help you get to your Emergency Fund goal sooner.
8. Create a side hustle:
- Get creative, think about the skill sets you have that you could leverage to make more money.
- Could you do babysitting? Sell items you no longer need? Are you good at crafts, cooking, or baking? Do you have a passion and knowledge for something you could teach others about?
- Some of the side hustles I did to make extra money were making candles, up-cycling vintage clothing, and writing product reviews for an online magazine.
- The options are literally endless if you keep an open mind and are motivated enough.
- Who knows… your side hustle could even develop into a thriving business.
Remember setting up an Emergency Fund is fundamental to your personal finance journey. It’s a gift to yourself, to provide you with freedom and flexibility to do what you want and most importantly to give you that peace of mind to know that you are prepared for those unexpected expenses.
Now back to Silver Sally.
She’s doing well, she’s recovered and lives in my parent’s garage whilst i’m in the UK. I’m heading home this year for a visit, so i’ll take her for a drive, put some Jovi in her speakers, and if she does decide to have a mechanical moment this time i’ll be prepared, I won’t feel like a fish out of water anymore.
THE LADDER GIRL