You don’t have to be a grown-up for long before you realise that life doesn’t usually go to plan. Things go unexpectedly and urgently wrong for everyone at some point in their lives. Whether it’s the moment you discover your car will need major repairs, you need an emergency root canal, or suddenly your fridge or a major appliance breaks down.

What we are saying is that we don’t know what unexpected expenses are coming your way, but we know they are coming (that sounds ominous doesn’t it). At some point, you will need some cash, and you don’t want to be reaching for a credit card.

How much should I have set aside?

So you know you need an emergency fund, but how much money should you have set aside? Ideally, you should aim to have three months worth of living expenses. Note, this is not to be confused with three months’ worth of wages; we’re talking solely about setting aside enough money to cover three months worth of your living expenses. Things like utilities, groceries, rent etc. If all you had was your emergency buffer, what kind of expenses would you consider as essential? If you can’t live without it, you should include these expenses in your emergency buffer goal.

Three times your living expenses is the goal everyone should be aiming for, but don’t get disheartened thinking that level of savings may be unattainable. Just remember that’s your end goal. The first step when you are starting out is to set your sights on building your emergency fund to $500. For example, if you save $10 per week, you’ll have $520, this time next year and you will be on your way.

My budget is tight. What are some ways I can build up my buffer?

If your savings capacity is small, it’s time to get creative with selling things around the house you no longer need, working extra hours, or pulling in money via a side-hustle or the sharing economy until you have $500 in your emergency account. If you can’t generate additional income, then it’s time to consider a financial fast. A financial fast is where you commit to heavily restricted spending, but only for short bursts, before returning to your regular spending plan.

Once you’ve got a minimum of $500, we want you to go for the next hurdle of growing your emergency buffer to $1,000.  You can then set your sights on one month’s living expenses, then two months before hitting your final milestone of having three months living expenses set aside. 

So where should I park my money?

This money needs to be out-of-sight, out-of-mind. Preferably a high-interest bank account with a different provider than your everyday banking; otherwise the temptation to spend it on non-genuine emergencies will always be there. (If you haven’t already listened to our Up Bank review podcast, do it. In it, we tell you a reference code that will put $10 into your new Up bank savings account. Maybe this could be a great way to get your Emergency fund started).

Once you have three months’ worth of living expenses, you might get a little swagger in your step. This is because you’ll know that whatever life throws your way you’ll be financially prepared. It won’t stop the bad things from coming your way, but it will make them easier to deal with when they do. And that’s a good a reason as any to get your strut on. You’ve got this adulting, finance thing down and can start to live your best Money Madam life. Whoot.

If you would like to get your hands on our unique Up Bank Promo code for Money Madam listeners, listen to Episode 6 – Cash Splash with Up Bank. You’ll also be able to catch it in Episode 10 airing shortly. You can listen to our podcasts via the link below.