Putting money away saves sunshine for a rainy day

Sooner or later, you may need to dip into funds for an unexpected emergency. Whether your car breaks down or your laptop goes on the blink or worse still, you find yourself without a job, money set aside for a "rainy day" will help you keep your head above water.

The aim of a rainy day account is to have at the very least three months' or ideally, six months' salary saved to cover expenses. This is separate from a regular savings account.

Mother-of-three Michelle House, 41, began putting money away for emergencies in her late 20s. The impetus to set one up came after her car broke down, resulting in costly repairs.

"When my car broke down, I didn't have the money available and I had to put all the expenses on my credit card," says House.

"It took ages to pay this off and on top of this, I was incurring credit card interest each month. My mother casually said, you need to have a rainy day fund for things like this. She was right and that's when I set up an emergency fund. I opened a new account and had 10 per cent of my salary deposited into it each month."

Over the years, House says she and her husband would dip into the account for small expenses. In 2006, House's mother travelled to China to teach English; while there she unexpectedly died from a brain aneurysm.

The couple's emergency account helped cover the expenses.

"Mum was only 59; this was completely unexpected. My husband and I are self-employed and we had to stop everything and travel to China. Having the money set aside meant that we didn't have to worry about the expenses while we sorted this awful tragedy," she says. "We had enough money for airfares, passports, as well as several months' living expenses to get us through."

Shortly after, another tragedy struck the family when Michelle's husband, Jonathon, was diagnosed with melanoma. The couple say the money in the emergency fund helped cover their bills over the next 12 months while he recovered from his illness.

"It was tough, but we got through it," says House. "In the past I have thought we have this money sitting there, we should use it to take a holiday. I never thought that we would have these types of emergencies. But, that's life and I've learnt to be prepared, as the Scouts' motto says. We're quite lucky that we didn't have to sell our house or get a loan.

"It's tough enough to have to deal with the emotional situation let alone a financial one on top of everything."



In an emergency

Review your cashflow and spending patterns: If you don't know where your money is coming from or going to, then you significantly lower your chances of having enough money when you need it. Once you know where your money is being spent, then assess where you can cut back and use this money to regularly contribute to your emergency fund.

Open a separate bank account for your emergency fund: Preferably, one that is

not linked to your general transaction account and has

limited methods of access to your funds as this will lessen your chances of spending on an emotional whim. Make sure you check for account fees and minimum balance requirements so you are not penalised.

Make regular contributions: Once you have identified your contribution amount then set up a regular transfer from your pay account to your emergency fund. The ideal timeframe to make a regular deposit

is as soon as you get paid - before you get a chance to start spending.

Patience: Growing your emergency fund will take time; expect it to take up to 12 months or more. The biggest rule is to leave your emergency fund for real emergencies. To help clarify the reasons behind this account, set clear written guidelines as to what constitutes an "emergency". Remember it is for emergencies and not to be used for travel or shopping.

Source: Count Financial