More than 40% of Australians don’t have enough money to pay for ‘emergency expenses’, new data has revealed.
According to the latest research from Mortgage Choice, 40.3% of Australians did not feel they had enough money put away for ‘rainy day’ expenses.
“To hear that 2 in every 5 Australians do not have the funds needed to cope with unforeseen incidents is quite alarming,” Mortgage Choice chief executive officer John Flavell said.
“The reality is, unexpected events can occur from time to time. And, these unforeseen events, like the loss of a job, a car accident, an illness, or a death in the family, can cause significant financial strain.
“Indeed, unforeseen events can throw off anyone’s budget, particularly for those who are living pay cheque to pay cheque.
“And while we cannot plan for such events, you can be prepared for them by creating a ‘rainy day’ account.”
Mr Flavell said there were three key strategies that all Australians could employ to safeguard themselves and their financial situation against unexpected events.
1. Set up an emergency fund
“In the first instance, Australians would be wise to set up an emergency fund that they can easily access for any unexpected costs,” Mr Flavell said.
“Not only will an emergency ‘savings fund’ give them greater ‘peace of mind’, but it will help reduce their reliance on credit cards and/or personal loans, which can be costly and create further financial debt.”
Mr Flavell said all savings should be kept separate from other everyday accounts. And, where possible, it is a good idea to choose an account with a high interest rate and low fees.
“As to the amount you should be saving, it is ultimately up to you and what you are comfortable with. You may want to start by saving just a small portion of your income and have this automated each pay cycle.”
2. Free up cash flow by paying off debts
“A lot of Australians have credit cards, personal loans, car loans and other debts that boast high interest rates,” Mr Flavell said.
“These debts eat into a person’s cash flow, which can effectively stop them from putting money away for rainy day expenses.
“Anyone who has various small debts with high interest rates should make it a priority to pay off these debts as fast as possible. The faster people pay off their smaller debts, the quicker they can free up some of their cash flow – cash that can then be injected into a savings account and used for those unexpected expenses that can crop up from time to time.”
3. Ensure you’re insured
Of course, while it is important to have emergency funds saved away for rainy day expenses, Mr Flavell said it was equally important for Australians to have adequate insurance.
“Mortgage Choice research has found that 52% of Australians consistently worry about what their family will do if something were to happen to them,” he said.
“When it comes to insurance, Australians are notoriously underinsured.
“While we are happy to insure our cars and even our phones, we often fail to ensure our greatest asset – our income.
“If Australians want to be truly prepared for unforeseen events, then they should take the time to insure themselves and their assets.
“Insurance will provide financial protection to Australians and their families should the unexpected happen. Better yet, insurance will also help minimise the stress and pressure associated with unforeseen events.”
Mr Flavell said any person concerned about their financial situation should speak to a financial adviser.
“A financial adviser will look at your current finances and personal situation, and draw up a practical plan for you to use in order to reach your goals,” he said.