Welcome to my video series, where we explore the key personal finance topics for Australians at home and abroad.
Today, we’re exploring the simple and often ignored financial strategy of setting up your emergency fund.
What is an emergency fund?
Forget the get rich quick schemes, the 0 to 100 properties in 12 months, or the offshore tax havens, your emergency fund is the most important element of any personal financial plan.
The emergency fund is cash that is generally held in a bank account that can be accessed quickly at a moment’s notice. As Australian expats, it’s an incredibly important piece of the plan.
There are any number of events that could happen that could put us in a position where we need to access cash quickly. This could be losing a job, being diagnosed with an illness, suffering from a disability, needing to relocate at moment’s notice or needing to fulfil some other expense quite quickly. This is where this accessible cash becomes crucially important.
How much should you have in your Emergency Fund?
When it comes to deciding how much you should have in your emergency fund, the best starting point is to sit down and work out your fixed monthly expenses. This will include items like rent, school fees, utilities, internet, transport, insurance fees, any other memberships, costs that you can’t simply decide not to pay because you don’t have the cash or the income available.
Once you’ve worked out what your fixed monthly expenses are, a general rule of thumb is to have at least 3 to 6 months’ worth of your monthly expenses held in your emergency fund. If your fixed monthly expenses are $5,000, then I would suggest holding between $15,000 and $30,000 in your fund.
Where should I keep my Emergency Fund?
Given the very nature of the fund, it needs to be both liquid and accessible at a moment’s notice. A common mistake that many Australian expats and others make is they get frustrated because interest rates on cash are not particularly high at the moment, and haven’t been high for a long time, and are probably unlikely to change any time soon. It’s important that this cash remains liquid.
When you look at where you should actually keep that fund, generally it’s in a bank account that can be accessed quickly, or if you have investment properties in Australia, holding that cash in the offset account may also be a sensible option, but you do need to be mindful of the tax implications of doing so, so I would recommend you speak to your financial planner or your accountant when it comes to deciding where is best to keep your emergency fund.
What if I don’t have an Emergency Fund?
If you don’t already have an emergency fund set up, then start putting a little bit away each month to start building it up. Once you’ve built up 3 to 6 months of your expenses, held in cash, you can then operate with peace of mind and start building the rest of your asset base.
If you have any questions at all about your emergency fund, or how much you should have, I’ve provided a link to my own emergency fund calculator online, which you’ll see in the summary, or feel free to reach out to me with any questions you have about the fund.
Likewise, if you have another personal finance question or topic that you’d like me to explore in a future video, please reach out and let me know. I’d be more than happy to assist.
Thank you and see you next time.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Fee-Based Financial Planner with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to Australian professionals in Singapore. Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
Australian Expatriate Group is a division of Global Financial Consultants in Singapore providing specialist advice to Australians living abroad.
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General Information Only: The information on this site is of a general nature only. It does not take into account your individual financial situation, objectives or needs. You should consider your own financial position and requirements before making a decision.
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.