Emergency funds and planning for regular expenses

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In this segment Helen explains the first 2 of her 5 top tips for creating a strong financial foundation.

Transcription

Announcer: 96five, where your family’s number one. It is that time of the week, we get to catch up with the lovely Helen Baker from On Your Own Two Feet. Evening, Helen!

Helen: Hey, how you doing today?

Announcer: Good, thank you! Everyone is talking money at the moment, the end of financial year has been and gone, everyone is trying to get their taxes and everything together to get them through. We’ve decided, we want to talk foundations when it comes to money and the foundation things that we need to look at to move forward.

Helen: Great.

Announcer: So, I know you’ve got five top tips that you give out people, so I was thinking maybe we could spread them off over the next couple of weeks and maybe we could look at one or two this evening, how does that sound?

Helen: That sounds great.

Announcer: Okay. I’ll leave it to you, what’s the first one that you would say?

Helen: Okay, so the first thing I talk about with having those five foundations is having an emergency fund. Lots of people today live from week to week or paycheck to paycheck and they haven’t established an emergency fund. The emergency fund is really helpful for the obvious things that can go wrong, such as the hot water system blows up.

Announcer: Yeah! Or the car decides that it doesn’t want to go!

Helen: Yeah! Or it can be as severe as someone losing their job and what have they got to fall back on to get them through until they can get another job? Or reduced hours, I know I see a lot of people in industries where they’ve been given bonuses in the past and things have tightened up a little bit and those bonuses are not necessarily there, or the overtime, and so that starts to put a squeeze on the financial situation. Being able to live, having an emergency fund there as a fall-back option is really good, as well as living within your means and treating the bonuses as a bonus and the overtime as a bonus, as opposed to making that your normal dependency for getting by. So that’s always really good.

On a positive note on emergency fund, is good things that happen such as some people’s children may get in a team that’s a Red’s squad or something like that and they have to disappear and go and do a competition somewhere and so having the money there to go and join them or to provide that money for them so they can have that experience is really good as well.

Announcer: Brilliant! I love that. Tip one, emergency fund. We’ve got that one.

Helen: Yes.

Announcer: It sounds so simple when you say it. You think, yeah, why would I not think of that? So, good one. You’re the expert, so what’s the next tip?

Helen: Okay. The second tip goes back a little bit to what we touched on last week, which is that spending and investment plan where we talked about how we don’t call them a budget because it makes things a little bit tough.

Announcer: Not a budget, okay.

Helen: But the spending and the investment plan. Expanding on that from last week, what I look at when we’re looking at the spending is trying to break it up into things that are going to come around regularly. So we talk about discretionary spend, which is all the fun money and the things that you want to do for fun and that might include some takeaway treats, as well as going to the gym and getting our hair and nails done or buying those shoes that we always want, or clothes.

Announcer: Speaking my language now, Helen! [Laughs]

Helen: So we sort of want to put money away to have those things, but we also have the regular ones, which are the bills. I tend to break them up into different pots. There’s different ways you can do it. One way you can do it is you can work out what the bills are for the year, so your electricity, if you have a home and you have the rates, you have all the different elements that you pay every month or every quarter that you’re committed to and respectfully, those things don’t stop. The electricity doesn’t stop, the rates don’t stop, they have to be paid. So if we work out what that would be, say over the whole year, and then if you get paid monthly, you could divide it by 12 and put that money aside every month so that when those bills come in, the money is already there for the rego [car registration] and the insurance and those things that crop up because they’re usually the ones that really impact people’s situation. It kind of goes up and it goes down, it goes up and it goes down, whereas if you’ve got it set aside, you don’t need to worry and that’s a really key aspect of finances, we try and remove worry. We don’t want people stressed.

Announcer: I love it!

Helen: So bills pot we have, we have a fun pot, we have a holiday pot, because we are going to go on holiday. People are going to go on holiday. Some people go away every Christmas, it’s kind of the Australian thing to do; we shut down for a couple of weeks and people disappear. There are other holidays that people might choose to have, but you know that you’re going to have them. So again, plan for it. Work out how much you want to do and then again, put something aside every month so that it’s there for when you go or if the bonuses come through, that’s your treat to go and spoil yourself as well.

Announcer: Brilliant!

Helen: Then you’ve obviously got the mortgages and those kind of things to do and then the last bit is that investment component, where you’re trying to put something away so that you can build for your future as well. Obviously this makes the assumption that we don’t have lots of other debts either, we haven’t talked about credit card debts and those kind of things, but another trick that you can do, is if you have money that you want to put aside for fun money, the shoes and the clothes, you might not see something every week, but you might see something and if you know the money is already there on the credit card and put it in what we call debit, then you can put it on that credit card knowing that the money is already there for it or you put it in another pot and you can do that with savings accounts these days, you can have sub-accounts so it helps you keep going.

Announcer: Brilliant! When you say it out loud, it just sounds so much more practical and I find that when you talk finances with people, everyone just sort of buries their head in the sand, don’t want to talk about it because they think it’s too hard. You have made it very simple this evening with your first two tips. I’m excited to hear what the next ones will be next week, Helen. Thank you so much!

Helen: You’re very welcome, see you next week. Bye!

Announcer: No worries. Now if you want to find out more, then make sure you check out www.OnYourOwnTwoFeet.com.au.