When times are tough financially or unexpected bills pop up, having an emergency fund set aside can alleviate stress. Unfortunately, many people choose not to or struggle to find spare cash to put aside. This article explains the importance of an emergency fund and offers clever savings tips to get your fund growing.

It’s the most common story financial professionals hear. Unfortunately, too many people fail to set aside emergency savings to see them through life’s hiccups. So when the inevitable happens, and an unexpected bill arrives, they are put under pressure to find the funds to pay it.

In turn, this leads to maxed out credit cards or taking out expensive short term loans. And so begins the bitter downward cycle of falling behind on essential bills and other regular payments.

Statistics

The Household Financial Comfort Report, published by ME Bank, found 21 per cent of Australian households had less than $1,000 in cash savings.

Additionally, 24% of households reported that if they lost their income, they’d only be able to maintain their current lifestyle for one month, and 11% for just two weeks, which is the equivalent of living life on the financial edge.

How much should I have in my emergency fund?

Financial professionals recommend having emergency savings set aside for life’s unexpected bills, but how do you go about doing this, and just how much money should you set aside for rainy day expenses?

The best place to start is to work out just how much money you have now and what income you can expect to earn over the next twelve months. Against this, determine what your expenses are likely to be and hopefully, they are less than what you earn. If not, you need to cut back.

Then decide how much you need in an emergency fund. Just how much you set aside will depend on your circumstances. Most experts suggest you should have the equivalent of between three to six months of living expenses set aside.

Start building up your emergency fund

The best way to achieve this is to break it down into achievable goals. For example, try to set aside one month’s worth of living expenses or, say, $2,000. That means saving $330 a month or going without two takeaway coffees each day for the next six months.

Once you’ve achieved that, try to save a second amount of $2,000 until you reach your goal.

A clever way to fast track this is to think about holding a garage sale or selling those things you have sitting around that you no longer need or perhaps even take up a part-time job for a few hours each week and put these wages towards the creation of your emergency fund.

Where to keep your emergency fund

The next step is to decide where you should keep these funds. Ideally, you want them to be separate from your day-to-day finances but still within easy reach, should you need them.

If you have a home loan, establish a mortgage-linked offset account. In doing so, these funds will not attract interest, which would be taxed at your marginal tax rate, but instead will work to reduce the cost of your overall mortgage.

Another option is to establish a ‘micro’ savings account. The rules on these vary, but most are based on rounding up every purchase made on a debit card and setting these ‘cents’ aside in a free savings account.

Whichever strategy you adopt, remember having a small amount set aside as rainy-day money, no matter how small that amount might seem, is better than having no funds set aside at all.

At Hejaz Financial Services, we have investment accounts to help you grow your savings Islamically. Visit https://www.hejazfs.com.au/investments/ to learn more about our Islamic investment options or give us a call at 1300 043 529 to talk to our licensed financial adviser about what best suits your situation.

This article highlights the importance of seeking financial advice, the cost-effectiveness, and the essential role of a financial adviser in your life. It also discusses how the recent education and compliance requirement changes have affected the financial advice profession.

It is commonly assumed that seeking financial advice is for the wealthy, and it only helps the rich become richer, yet financial advice can prove useful to anyone who wishes to better their financial future.

Financial advice is like getting a health check-up for your financial situation. Your financial adviser is like your personal trainer, assisting you in achieving your best possible financial health.

Seeking professional financial advice provides you with a clear path to achieve your financial goals, and that is an investment worth making.

Why invest in financial advice?

Imagine a couple in their early 30s who started investing in the share market in 2019 to save for their children’s private school fees over the next 10 years. Their shares dropped by 35% during the March 2020 market crash caused by the COVID-19 global pandemic. They panic and sell their shares, incurring a loss. However, a good financial adviser would explain the risks, provide examples from their experience and probably would have advised them to hold the course because theirs was a 10-year long term plan. Within a year, the share markets recovered and are now higher than ever.

Financial advice isn’t only about investing your money in the share market. Want to save to buy your first home? Want to protect your children in case of your death? Want to enjoy a comfortable retirement? Don’t understand what to do with your super or how to invest in the share market? Think of a financial adviser as a one-stop shop for the majority of your financial issues in life.

Come to think of it, be it your parents telling you to save money from your first job or an Instagram ‘finfluencer’ explaining the benefits of compound interest while dancing to a trendy song, these are all informal pieces of financial advice you receive throughout your lifetime.

However, a professional adviser can legally provide holistic advice by reviewing your entire financial situation and your risk-taking capacity to recommend an appropriate investment portfolio. Also, an adviser’s investment recommendations are based on research which can give you comfort over your decisions rather than constantly worrying about the investment you made based on your work colleague’s stock ‘tip’.

Is financial advice cost effective?

The financial advice industry has undergone a monumental transformation following the Financial Services Royal Commission of 2017-2019. As a result, new education and compliance requirements have been legislated to further protect the client’s best interests.

This has led to a drop in the number of financial advisers Australia-wide – from approximately 28,000 in 2018 to just 19,000 in 2021.

The silver lining here is that while there are fewer advisers to choose from, the quality of advice is deemed to improve exponentially.

As per Russell Investments “Value of an Adviser” report, advisers added a value of approximately 5.2 percent to their client’s portfolios in the 2020 COVID-19 pandemic.

Still, the true value of financial advice is much more than comparing the fees you pay against the performance of your investments, or the tax saved on your income.

A financial adviser can be a sounding board for your financial ideas, a resource to answer the simplest or most complex of queries, provide research-backed recommendations, and guide you over the long term based on their experience.

Ready to make the investment?

Your day to day job may not allow you to focus on the financial aspect of your life. In contrast, your financial adviser’s primary daily responsibility is to help you handle your finances efficiently.

At Hejaz Financial Services, our financial advisers can help manage your Superannuation, Home Finance, and Investments all in an Islamic compliant manner. Your financial future begins today.

Visit https://www.hejazfs.com.au to learn more.