Rainy day savings
Rainy day savings are an excellent way of preparing for any unexpected financial storms thrown your way. Out of the blue bills are never ideal. They can be a serious source of stress and can throw a spanner in even the most fool proof plans. Having some savings tucked away you can fall back on can go a long way to alleviating the pressure these bills can bring.
The hardest part for many is just getting started. There’s no trick here, you just need to put something away. Find an amount you can put away comfortably each week and put it into a savings account as soon as you’re paid. Some people assume that if you’re not putting away a large enough amount that you might as well not bother, but every little bit helps. A few cents might not seem like much, but get enough of them and they turn into dollars. That knowledge stays true when dollars turn to hundreds and hundreds turn to thousands. It all adds up over time. If you have an interest earning savings account, your money can go even further.
Need more help for building emergency savings? Check out our guide.
Make a plan
Saving is a good start, but if you really want to be prepared it helps to budget. This way you can avoid adding any unnecessary expenses and plug up any leaks in your spending. Begin by looking over your bank statements. Many people underestimate just how much of their money goes where. Small expenses may not seem like the have much of an impact, but they can quickly add up and slow your progress.
Compare your spending against your earnings and give yourself a monthly budget. If your outgoing spending is higher than your incoming earnings, then it’s time to re-evaluate your priorities. If you’re struggling to figure out how to divide your income, try the 50/30/20 rule – 50% of your wages go to your needs (rent, groceries and bills), 30% to your wants and 20% into your savings. You learn more about the 50/30/20 rule here.
If your outgoing spending goes towards things like loans or mortgages, then it might pay to re-evaluate the terms or weigh up other options.
Avoid being hurt by bad loans and debt
Unnecessary debt takes away from your ability to respond easily to unexpected events, as missing a payment so you can deal with something else could incur hefty fees. Meanwhile, a high interest rate on your loan means you could end up paying more than originally intended. This could undermine any budget you have in place or savings you’re trying to establish. It can be better in the long run to tackle your highest interest rate debt first to save on those extra costs.
If you have a mortgage or a loan, it might pay to start by checking your repayment plan is right for you. By weighing up your options you might find a way to get debt free faster, or a way to relieve some of the ongoing stress that can result from unnecessary debt. Check out our tools and calculators to see how you could get debt free faster.
It can seem overwhelming at first, but if you have multiple debts and are struggling to make any headway you could try a debt consolidation loan. A debt consolidation loan takes all your various debts and rolls them into one – which can make it easier to keep on top off. Just make sure that any interest rate on this new loan is lower than what you’re currently paying. You want to reduce your debt, not add to it. A storm isn’t quite as heavy when there are fewer clouds.
This document does not have regard to the financial situation or needs of any reader. As individual circumstances differ, you should seek appropriate professional advice.