How to avoid a money emergency
In 2008, I was sitting at my cubicle in the National Bank tower on Queen Street in Auckland. I was staring out the window, watching some sunbathers on the rooftop adjacent to our floor.
In my daydream, I felt this presence loom over me. I felt a little uncomfortable, but I kept staring.
Tap, tap, tap… I shrugged my shoulders and kept staring…
A fist came down on the desk snapping me and everyone around me out of their daydreams. A voice from Inverness cackles, “I thought that would wake you up laddie! Get back to work!” That was probably the tenth time the boss had to wake me up out of a daydream.
Luckily for me, he was reasonably patient, and would just give me a bit of a kick to get into gear.
I was a man with a plan though. The plan was to build up enough savings to allow me to do something else (what that something was… I wasn’t sure).
I looked at this savings fund as a ‘get out of jail’ card. It would allow me three months of not earning anything to try whatever I wanted.
What transpired in 2009 was that my then fiancé (now wife) decided to take contract work in Australia for a ridiculous amount of money (albeit working in really small towns all over OZ).
Luckily for me, I could travel with her. So I left the bank and packed my bags.
But this would never been possible without an emergency fund. It allows you some wiggle room when it comes to making big life decisions. And it doesn’t take a lot of financial planning either.
So what should your emergency fund look like?
Ideally, it would contain enough funds to cover 12 months of your living expenses. This includes your mortgage, food bills, and vehicle expenses… basically everything.
12 Months, I hear you choke…
You are right: very few people get to this level of emergency cover, but it is a good target.
I recommend starting with putting away enough for one month. This will take you a while as not everyone has excess funds available to put into an emergency fund. After the first month amount is reached - try and hit three months and move on from there.
Your emergency fund is also there to cover expenses that you would otherwise not foresee. This can range from medical procedures to redundancy, it just gives you the opportunity for breathing space should something financially serious occur.
So what happened to my original emergency fund?
When we returned to Auckland in January 2010, I started at Aspire Advisers as a Mortgage Broker. We worked on commission, so it allowed us to survive while I got the ball rolling.
Due to my emergency fund, I no longer have to listen to the bagpipes play when I arrive late to work and stare out the window all day!