“I’m 30 years old. I work in marketing and I earn between $76,000 per annum, but I’m living pay check to pay check. I haven’t got any debts except for some HECS but my rent and bills have gone up over the last two years, and I’m constantly struggling to keep up. I’ve tried saving in the past, but something always comes up, which ruins the plan.

I know I should have savings by now, and I feel very behind but I don’t know how to start. It feels overwhelming and I’m constantly worried that I won’t know what to do if an emergency comes up.”

- Charlie

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Hey Charlie, 

The first thing you should know is that you’re absolutely not alone. 40% of Aussies have less than $1,000 in their savings - but we do want to see that stat change!

It’s been a tough few years; first a pandemic, and now a long period of inflation where we’ve seen the cost of living skyrocket.

These factors create an even tougher environment for dealing with unexpected expenses.

While having an emergency fund allows you to have savings for a rainy day, it also gives you peace of mind that comes with knowing you’re ready for life’s little surprises. Think: flat tire, clipping the back of a BMW or an unexpected vet bill.

According to Bankrate’s financial wellness survey, not having enough emergency savings has had a negative impact on the mental health of 56% of consumers.

That can manifest into things like struggling to focus at work, impulse spending, or obsessively thinking about money - all of which we can learn to avoid.

Building an emergency fund isn’t hard, but it does take some discipline and a structured approach, which looks a little like this:

1. Break down your monthly expenses
2. Work out how much you’ll need to save
3. Set yourself a budget
4. Build a habit to check in on your financial health
   

Let’s walk through it.

Break down your monthly expenses

It sounds like in the past your biggest challenge has been keeping track of your expenses.

Without clarity on your expenses, it's hard to work out what you should spend on, and what you should forgo.

Often expenses can feel like they come out of the blue. 

Travelling down the coast for your best friend's wedding, your car servicing, replacing your tattered couch…anything!

And suddenly, pulling that fund together feels hopeless.

But here’s the thing, these sorts of events might slow you down, but they shouldn’t stop you from building your emergency fund. 

Start by pulling up your bank statements and take an audit of the last (atleast) three months of transactions to find out how much you spend on average per month, and what you’re spending on.

To make this process short and snappy for you in the future, connect your bank accounts to the Flux Budgeting Tool so you don’t have to do the hard yards of tracking your spending.

It’ll help to categorise your expenses: rent, household bills, subscriptions, fitness, entertainment, health, etc.

Some of your outgoings will be fixed expenses (like rent), but others will be variable expenses that change month to month - you can average these out over time.

This can be a bit of a painful exercise, and you might find there are things you’re spending on without realising (hellooooo $60 per month gym membership).

We’ve all been there, but this is no time to get judgy on yourself - we’re here to get a clear lay of the land.

Once you know how much you’re spending on average, you’ll be able to subtract that from your monthly income to see what you’ve got left over.

Work out how much you’ll need to save

Most experts reckon a good goal is to have enough emergency funds to cover at least three months’ worth of fixed  expenses.

Now that you’ve already done the work to figure out how much your monthly expenses are, you’ll be able to get to a specific figure that you need to save up.

Set yourself a budget

So by now, you know what you’re working with (ie. what your monthly expenses look like on average), and what you’re aiming for (that sweet, sweet emergency fund).

Your budget is just your map to get from where you are now, and where you want to be.

Now, Charlie, you’ve said that you don’t have any debts, which is great to hear.

It means you’re not spending more than your earnings, so building an emergency fund will be far easier than you’d think.

But, this is where you’ve got some decisions to make.

If you’re struggling with keeping on top of saving when big expenses come up, it could help to set aside a certain amount of money each time your paycheck comes in for your emergency fund.

If you’re not sure how much is reasonable, the 50/30/20 rule can be a helpful guide.

Keep in mind, your emergency fund is designed to get you through tough times, so you may need to say goodbye to extras like dinners, shopping and other savings for a while.

But you’ll be thankful you did it, if/when you ever have to use that emergency fund.

Build a habit to check up on your financial health

You’ve done the hard yards now of getting yourself set up, now it’s just a matter of checking in with yourself to make sure you’re on track for your savings goal.

Just like your regular dental check-ups, your finances need check-ups too, and while you’re building your emergency fund, those check-ups should be at least once a month.

It’ll give you an opportunity to make any minor adjustments to your spending and help keep you motivated towards getting that emergency fund together. 

Note: All information contained in the Flux app, www.flux.finance, www.joinflux.com, app.flux.finance and any podcast of Flux Media Pty Ltd (ABN 27 639 804 345) is for education and entertainment purposes only.

It is not intended as a substitute for professional financial, legal or tax advice. While we do our best to provide accurate information, we accept no responsibility for any inaccuracies that may be communicated.