Are you prepared for the next financial crisis?

Melissa Goodwin, Frugal and Thriving Updated November 13, 2011, 12:00 am

Whether your next financial crisis with an emergency fund. Here are five tips to help you stash some emergency cash.

A financial crisis does not have to be of global proportions to cause you financial stress. It can be the result of illness, accident, expensive car repairs or even a broken fridge.

The key to surviving a financial crisis is to build an emergency savings fund. Starting your emergency fund now, when times are good, will ensure you can weather the storm should a financial crisis occur.

Sounds obvious, right? However, a recent ING Direct survey found that 1 in 4 Australian households don't save any money at all and only 22% of Australians use the effective 'pay yourself first' savings strategy.

How much should you save towards your emergency fund? A few months worth of basic expenses including rent or mortgage repayments, loan repayments, bills and groceries will make life easier should you lose your job. But if saving that much money seems impossible, even a few dollars set aside each week can pay for car repairs or a new fridge.

1. Build your emergency savings

The key to successfully building your emergency fund is to deduct your savings before you pay the bills. In other words, pay yourself first. Decide how much you can save, and put this amount aside as soon as you get paid.

You will want easy access to your emergency savings when you need them. An online savings account allows you to benefit from high interest returns without locking your money away in a term deposit. Make saving money easy by automatically transferring your savings, before you have time to miss the money.

2. Keep out of the kitty

You don’t want to undermine your savings efforts by dipping into your emergency fund for non-emergencies. Instead, define what constitutes an emergency, stick to this definition and only spend your emergency savings on emergencies.

3. Stash a little emergency cash

Our upstairs toilet recently leaked into the lounge room below, late on a Saturday night. Our emergency cash stash came in handy to pay the plumber that night. While most would advise against stashing cash around the home, a couple of hundred dollars, well hidden, can come in handy when you need money in such an emergency.

4. Pay extra towards your mortgage

As well as savings, another way to build an emergency fund is to pay extra towards your mortgage. Many mortgages offer an offset account or allow you to redraw your extra repayments (check with your lender for terms and conditions). By paying extra on your mortgage you get the dual benefit of building a healthy emergency fund while saving money on interest.

And the kicker? If you never redraw your extra repayments, you could potentially save tens of thousands of dollars on your mortgage and shave years of the term, just by paying a few extra dollars a fortnight. Home loans with offset accounts are easy to find at Yahoo!7 Moneyhound.

5. Minimise your credit card spending

As a last resort, your credit card can come to the rescue in an emergency. However, it won’t be any use if it’s maxed out! Creating a debt reduction plan, will not only to save money on interest, but ensure you have a line of credit, should you ever need it.

Of course, I hope that you will never have to use this advice. But if you do find yourself in a financial crisis, having an emergency fund will greatly ease the financial burden and see you bounce back a lot quicker and a lot happier.

Source: Melissa Goodwin, owner and founder of Frugal and Thriving

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Are you prepared for the next financial crisis?

Whether your next financial crisis with an emergency fund. Here are five tips to help you stash some emergency cash.

Saving Accounts

Credit Cards

Home Loans

Broadband Plans

iPhone 4S Plans

Electricity & Gas Prices

Newsletter

Help me find a savings account

Account type

State/territory

Anytime access accounts

Fixed-term deposit accounts

Help me Save

Use our savings account interest calculator

Moneyhound helps you compare 357 saving accounts from 79 trusted issuers

Saving Accounts Latest News

Compare more products and services