What's an emergency fund?

Foreign Money, where we show you how to pay your home loan off in up to half the time of a normal bank loan. Welcome to the Crown Money Podcast. I'm Jessie Edge, and I'm joined again by one of our amazing staff members, Adam Santangelo. Welcome back to the podcast, Adam.

Thanks, Jess. I'm surprised I got the callback to come back, to be honest. But I'm here and I love you.

You were just terrible the last time. Yeah. I can't believe I brought you up. No, you're amazing, buddy. We're so lucky to have you on again. We've got a fantastic topic to talk about today. This is something that literally affects every single one of our clients and most people out there listening. So this is the emergency fund. So tell us a little bit about an emergency fund.

Yeah, I love this. So I guess there's two kind of ways to look at an emergency fund. One is within your actual loan account. So you always want to have some backup funds for a major emergency. I mean, there was so many Covid's obviously a little bit behind us now, but there's been so many clients over the past where some of the hard work and then Covid hit. They lost their job and they had so many funds tucked away getting through that financial crisis without the added financial stress. So I think emergency fund is a huge thing to strive for that we all need to be aiming towards, and I think a bit of a target and kind of run through this review. If you've actually been on board for 12 months as targets to actually hit and save, and one of the minimum ones we really want to aim towards, minimum of really 3.3months, but ideally at least 6 months to start with.

Sounds like a big amount, doesn't it? But it's so important when you think about it, because we're all susceptible to losing our jobs, getting unwell. And even if you are unwell and have an insurance policy, it can often take them a while to pay out. So there's a whole lot of reasons why having that little security blanket tucked away can make a huge difference to your financial success. Because we've seen it in the past when a person doesn't have an emergency fund and they have an emergency, they usually have to turn to credit cards with really high interest rates, loan sharks, borrowing from friends and family, all things you really don't want to have to do that.

Exactly. Right. You never wanted to be able to be in a situation where you have to open up a credit card when you know you're stuck In a high interest rate, vicious cycle which is just so hard to get out of. So that emergency fund is super important and yeah, that's something we all need to work towards.

Awesome. So you mentioned there was two different types of emergency funds. So one inside the home loan account. What's the other one?

Definitely. So insider is probably the most important. But what's also just as important is having something outside of your actual home loan account that you can access in case something happens on a weekend. Broken sake. So as you know, our clients will have a weekly spending matter. They're sent across the church job is to spend that and really go through that and ideally to have that as low as possible on the next one comes through. But what happens if you leave funds on a weekend? What happens if they've got a flat battery and they're only taking cash? We've got to take the vet, our dog to the vet or the kids get sick. Something happens, it's always going to happen. We recently had one where there was just a delay in the actual funds being received. Obviously the banking expenses might be updates, whatever it might be where you give me access to funds immediately. So I think we all should be struggling towards at least a 500 to a thousand dollar home emergency fund in a separate savings account, which is out of sight, out of mind, completely separate to your weekly spending account. So it's not dipped into on a Friday night with pizza man, but yeah.

Down at the pub, drinks are on me.

You're right if it's there. That same spending account is just so easy to access, so easy to spend. And we all know whatever we've got access to, we are going to spend. So ideally a separate savings account, separate transaction account.

What are your thoughts on them having that $500 in cash in a draw at their house?

I do like it. I do like maybe splitting the emergency fund a little bit in cash in a safe place at home and a little bit in a card. Because if you are out and about and you do need access to funds, you can't really go home and get that stock drawer or whatever it is and access it that way. So I think I could split. It's a perfect way to do it.

We've definitely had a lot of clients say that because, you know, obviously we hate credit cards. We love cutting up our credit cards. It's one of our CEO's absolute passion. But you know, a lot of the argument is, well, I need a credit card in case of an emergency and this is definitely that. Well, you don't need a credit card, you need an emergency fund. We completely understand that. Or you would benefit from one. But that absolutely can be in the form of cash sitting in another account in another car, tucked away in the back of your wallet that you never look at and you only pull out in an absolute emergency.

Yeah, exactly. And the busy debit spending account does exactly what the credit card does, as you know, so you have the cash available in it and then you can cover any expenses that last because it's going to happen, you know, this will happen on the weekend and we get caught out. So we just never want to be in that position when we are caught out because that's just worst kind of scenario for everybody.

Yeah, absolutely. So having a bit of an emergency fund, you reckon 500 to $1,000 tucked away either in cash or in that card in the back of the wallet. You've got to be really mindful though that we're not just dipping into it because we've kind of run out of money or something. This really is an emergency fund. It's not just, ooh, I've overspent on my weekly spending amount and I really need a little bit of extra. Got to still be conscious. That absolutely is for those, you know, the emergencies that do pop up in life. But you know, when it gets spent, you just let us know and we can refill the emergency bank. So we'll, we'll process a redraw for you, send you another 500 bucks and put that back in that account when you need to.

Exactly. It's only 24 hours away, as we all know. So if it is spent on the weekend, our assistant bridge lots there tucked away, put that peace of mind on every get caught out again, starting to fall back on. So yeah, nothing but one year still October, if I should be needing.

Absolutely. One last thing I'll say is that when you do have an emergency pop up, especially if it's the big ones so you've lost a job or something along those lines, just make sure you reach out to us as soon as you can. So that's our job. Our job is to be there for you during those times, help you plan, help manage the account, figure out what we're going to do for the next few months and yeah, so that would be my comment at the end of that as well.

Yeah, definitely. We've got all the figures here. We know exactly how much one month expenses are costing you. Obviously everybody's a little bit different, but we can break that down and say, okay, well, guess what you've actually done, the hard yards. You've got eight months up your sleeves. So you can actually maybe take a month off de stress, then get back into the work. Yeah, yeah. Relax. But we obviously, we want to get back in straight away. But of course you can just break it down for you and show you exactly when you will run out of funds. So we know we've got a cutoff time and we need to act before that actually arrives.

Fantastic. Okay. That's awesome. Thank you so much for joining us, Adam. Really appreciate your insights and I hope this has helped out our listeners.

Pleasure.