The best ways to save emergency money
AUSTRALIANS are undoing their hard work by dipping into emergency savings for non-essential expenses like holidays or nights out, research has found.
Westpac data revealed one in two Australians have accessed their emergency savings funds, with the main reasons for doing so including:
- A genuine family emergency (42 per cent).
- Running out of money to pay the rent or mortgage (36 per cent).
- Running out of money before payday (27 per cent).
- Paying an unexpected debt (17 per cent).
Westpac's head of savings Kathryn Carpenter said the best way to manage savings is to map out what you are saving for and how you want to access the funds.
"Emergencies usually require quick access to funds so keeping a portion of funds available in an at-call savings account and not just term deposits will ensure people can act quickly when they need to,'' she said.
"Secondly it is important to make a conscious decision to save for an emergency fund.
"Once you have your savings goals set have them on autopilot."
The nation's central bank, the Reserve Bank of Australia, this month raised concerns about households struggling with high debt levels as interest rates remain at record lows.
This also means having a savings buffer is as important as ever to cope when rates do eventually rise.
Setting up automatic deposits - usually set up from your salary - are a good way to put the money aside without noticing it's gone.
About one in three people admit they had a strategy in place to stop them dipping into their savings.
This includes having a "hard to access" bank account, eating cheaply for the week and restricting access from the emergency funds bank account.
Consumer finance expert Lisa Montgomery said problems with savers keeping their hands off hard-earned cash can arise when the funds set aside are linked to their daily transaction account.
As to how much should be stashed in the emergency fund she said, "It comes down to what your lifestyle is like."
"I would suggest somewhere between $2000 and $5000,'' Ms Montgomery said.
There are plenty of savings accounts on the market but the interest rates are low on many - often around the 1 to 2 per cent range.
Ms Montgomery suggests having an account with no card attached.
"Or you could use an account that replicates a term deposit but you can deposit money into it,'' she said.
Other strategies include building up a savings buffer in a home loan redraw account that can be accessed at any time.