How to Build an Emergency Savings Fund – Expert Tips and Success Stories
An emergency savings fund is a crucial safety net for unexpected expenses, providing financial security when it’s needed the most. However, many New Zealanders are finding it increasingly difficult to save due to the rising cost of living crisis and soaring interest rates. As a result, they are forced to rely on debt when faced with unexpected expenses. In this article, we will explore the strategies and advice provided by successful savers and personal finance experts to help you build your own emergency fund.
The cost of living crisis has hit Kiwi families hard, with a 90% increase in people seeking help from budgeting services in the past year. Rising inflation and soaring interest rates are making it even more challenging to save. According to a Centrix Credit Insights Report, consumer credit demand has increased by 5% compared to the previous year.
Shirley McCombe, the general manager at the Tauranga Budget Advisory Service, emphasizes the importance of developing savings and eliminating debt to create financial resilience. McCombe states that having an emergency fund reduces stress and eliminates the need to borrow, which can have long-term effects on tight budgets.
Tejal Kala, a student in Wellington, has managed to save $39,000 since the age of 17, including $5,000 in an emergency fund. Kala emphasizes the importance of financial awareness from a young age and making saving a priority. She saves $100 every week before paying for anything else.
Casslyn Lee, an expectant mother from Auckland, stresses the peace of mind that comes with having savings. Lee believes that putting away money in a savings account helps avoid overspending. She focuses on cooking at home, cutting down on takeaways and eating out, and buying items on sale or in-season.
According to Shula Newland, the founder of Full Balance Financial Coaching, developing an emergency fund is all about changing habits. Newland emphasizes that different people have different money personalities and situations. She believes that creating a balanced budget is achievable for everyone, even if they are drowning in debt.
Janet McDonald, a Timaru resident receiving a supported living benefit, saves $10 per week from her benefit to build an emergency fund. Despite her circumstances, McDonald tries to live within her means and emphasizes the challenges faced by single people on benefits.
Tom Hartmann, the lead of the Retirement Commission, suggests that a $1,000 emergency fund is a good starting point for smaller unexpected expenses. For a fully-fledged emergency fund to cover the risk of redundancy, he recommends saving three to six months’ worth of expenses. Hartmann highlights that an emergency fund allows individuals to self-insure against risk and avoid transferring it to a company through insurance.
Successful savers Denise and Vinnie Anglesey from Wellington attribute their debt-free status to the FIRE (Financial Freedom, Retire Early) method. They paid off all their debt, including their mortgage, in seven years and now have a $25,000 emergency fund and over $200,000 in investments.
Building an emergency fund may seem challenging, but it is essential for financial security. Experts advise starting small and saving consistently, even if it’s just a few dollars per week. Prioritizing needs over wants and making conscious spending choices can make a significant impact on saving habits.
In conclusion, the rising cost of living crisis and increasing interest rates have made it difficult for some New Zealanders to build emergency savings funds. However, by following the strategies and advice provided by successful savers and financial experts, it is possible to develop financial resiliency and create a safety net for unexpected expenses. Start small, change spending habits, and prioritize saving for a more secure financial future.