Be prepared for a ‘rainy day’
If you can manage it, putting a little money aside for unforeseen circumstances is a good financial habit.
As we age, the importance of financial stability becomes increasingly apparent.
While it’s sometimes difficult to manage from week to week, setting money aside for unforeseen circumstances is a prudent practice that can ensure peace of mind and security during retirement.
Here are a few reasons why it’s a good idea to have something in reserve:
- Health-related expenses: While Medicare and private health insurance cover many costs, out-of-pocket expenses can arise unexpectedly. Having a financial cushion can alleviate the stress associated with this.
- Home and living adjustments: Whether it’s the need for more accessible housing, assisted living facilities, or modifications to your current home to accommodate mobility issues, these changes can be costly.
- Family support: This could range from helping a grandchild with education expenses to providing temporary financial assistance to children facing unemployment or health issues.
- Inflation and rising living costs: Inflation can erode purchasing power, making it more expensive to cover daily living costs over time. Unexpected increases in prices for essentials such as food, utilities, and transport can strain a fixed income.
- Bereavement costs: The death of a spouse or close family member can bring unexpected expenses such as funeral costs, travel for family gatherings, and legal fees associated with estate settlements.
- Natural disasters: Bushfires, floods, and cyclones can cause significant property damage and disrupt your life. Emergency savings can help cover insurance gaps and provide for immediate needs in the aftermath of such an event.
Here are some practical steps you can take to build up a “rainy day” fund:
- Start by reviewing your current financial status. Calculate your monthly expenses and identify areas where you can cut back or save more efficiently. Understanding your financial baseline is the first step in creating a robust emergency fund.
- Determine how much you need to save based on your specific circumstances and potential risks. Bear in mind that your needs will change as you get older.
- Set up a direct debit from your pension or other income sources into a high-interest savings account. This way, you consistently save without having to think about it.
- Make sure you are receiving all the benefits to which you are entitled, such as the Age Pension, health care concessions, and other government support. These benefits can free up additional funds that can be directed towards your emergency savings.
- Life circumstances and financial markets change, so it’s important to review your savings strategy regularly. Adjust your contributions as necessary to ensure your emergency fund remains adequate.
By building an emergency fund, you can safeguard your future financial independence, help support your family, and maintain your quality of life in the face of unexpected events.
