The value of regular savings and a “rainy day” fund

In my recent article “A sustainable monthly budget – And achieved without the fun police!” I pointed out that with a few simple lifestyle changes to a hypothetical household budget I had achieved a decrease in expenditure (and thus saved) $3680.40 over a year.
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The list of changes I made was certainly not exhaustive, and in fact I’m sure I could have come up with more savings had I chosen to go through every category of household expenditure.

You might be wondering why I’m mentioning that again here. I’m raising it again because it relates directly to what I’m talking about today.

I’ve often had people say to me that they can’t be bothered with, or it’s too hard to budget. Alternately they may claim that they never have any money left over each week, fortnight or month that they can save.

My answer for most people is - I think that you can’t afford NOT to save.

The reason that most people think they can’t afford to save is that they don’t have the structure of a well-defined budget that outlines what their monthly income and their fixed monthly expenses are.  If you don’t understand what your cost of living actually is, then of course you will never have the capacity to save.

However, the value of a budget that helps define your monthly cost of living then also informs you as to what you have the capacity to save each month.   

Expenses such as school fees, utilities bills, insurance premiums etc. DO NOT fit into the category of unexpected expenses. You know that they are going to occur each year, so you build an appropriate allowance into your monthly budget for each of these expenses.

The savings that can be generated each month then form the basis of your “rainy day” fund. Unfortunately we all have some genuinely unexpected expenses from time to time, so the “rainy day” fund is then what can be used to assist you with those genuinely unexpected expenses.

The further value of proactively budgeting like this is that it lessens the stress and anxiety that inevitably occurs in a time of unexpected expense, but it also lessens the actual financial cost of servicing this expense. By funding the expense from your own resources, you have then not had to rely on short term funding from your bank.

What this means is that you haven’t had to rely on your credit card (most likely at interest rates beyond 20%), or applying for a personal loan (again, further set up costs, interest payments, time and anxiety) to get you out of a short term financial dilemma.

Proactive management of your household budget can in fact by very empowering.

To learn more contact Leigh at Empower Money Management.

leigh@empowermm.com.au
www.empowermm.com.au

0407 439 827