How much do I need in my savings for a rainy day????

How much do I need in my savings for a rainy day?

There is no one size fits all to this question, we all have different needs and lifestyles. Also many of us are already stretched so to save when you are living from one pay cycle to the next can be challenging.

I do recommend you save at least 6 months to cover your fixed costs and your basic needs such as food and transport. Now, many other money experts would simply say you need at least 6 months of your salary… yes but I am being realistic here and breaking it down to the basics for those who are just getting started.

So what do I mean by fixed cost and how do I work out 6 months worth?

Fixed costs are your fixed expenses such as your mortgage or rent, your power and gas bills, water bills, health insurance, car insurance etc. Basically, anything you are committed to pay on a regular basis and usually are under a contract of some sort. This also includes internet, phone and entertainment subscriptions such as pay TV.

So how do you work out how much you need for 6 months?

An exercise I put my clients through is to go over 3 months of your bank statement. This will show you exactly how much you spend on these items.

TIP: To save time, export your bank statement to CSV file which is a type of spreadsheet, then select sort via the description to A to Z so you can quickly and easily see each group of items and how much you spend per quarter.

Highlight all the fixed amounts and then calculate how much you have spent during this time. At this point double this figure and you have your fixed cost amount for 6 months.

You are not done yet though as you have to eat and get around right?

Again go back to your spreadsheet and look for all super market and petrol transactions. If there are other things you cannot do without, add them to the list. Again calculate the total of how much you spent in this 90 day period and then double this figure.

Add the fixed value to your variable value and you have something to work toward as your savings safety net.

Now this is all good and well to know how much you need to save, but lets get practical.

This exercise is also good to do to create a budget… Yikes… I really don’t like to use that word as it feels restrictive to many people so let’s call it a lifestyle plan.

Go back to the spreadsheet and calculate how much you need of those fixed costs for each pay cycle, that is, if you get paid fortnightly how much money do you need to cover these expenses each fortnight? These bills should then be set up as a scheduled payment so you pay them when you get paid.

Now work out your total variable amount – food, petrol, clothing, entertainment etc. Total this and work out how much you need for each pay cycle. I recommend this goes into a separate bank account for everyday living.

Now don’t stop there… If your bank statement show, you haven’t saved much or none at all, you do need to have a look at the value of your “variable” spending and see where you can cut back.

To simplify things, I could recommend you save 10% of your net income, but this is not going to be practical for everyone. So another way to find where to cut back on spending in order to save more is to go through Direct debits and subscriptions, look to see if you can get a more competitive rates for your amenity providers. Are you paying for life insurance? Maybe you can do this through your superannuation (please seek advice on this before you proceed to change anything).

Another thing you could do (if you have time) is a side hustle – a part time job or decluttering and selling items you no longer need on ebay.

There are many practical ways you can save and find ways of saving.

If you to know more about this topic I suggest you listen to my podcast with Frank Kidenya on how to Future proof your finances… we are also holding webinars on this topic so please if your interested to know more register here.

If you are interested in getting some advice please get in touch here.

Amie Baker

Amie is a passionate financial adviser who also is a hard working mum of her 3 boys. With a dedication to helping people in her community and also hosting and running regular charity and fundraiser events, she is a busy professional just like you. Her focus is to help her clients by showing them simple ways they can achieve their financial goals. Amie's success is in the success of her clients.

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