Covid-19 and the subsequent lockdowns came like a bolt out of the blue and many people probably found themselves wishing they had been using that savings account.
Mary Holm talks to Jesse Mulligan about the importance of having emergency money set aside for a “rainy day”, how much you should save and when you should use it.
She says people who lost their jobs or owned their own small business are possibly feeling a lot less secure than they were before the global pandemic.
“I think [saving] is the second most important thing for people to do. The first is to get rid of high interest debt… after that, it’s a really good idea to set up some kind of ‘rainy day’ fund.
“After all, when things go wrong in your life, you don’t need financial trouble as well. Often when people need to call on this money it's when a health problem has developed or the roof’s leaking.”
Holm says there’s also the psychological security of knowing that there are a few thousand dollars sitting there if its ever needed.
As for how much you need, Holm says how long is a piece of string.
“Some people say three months' income and I’ve even heard six months' income, but I think that’s totally unrealistic for most people. What’s more, ‘rainy day’ money is money you want to have fairly accessible and that means, by definition, you’re not going to earn a big return on it.
“There’s always a trade-off between how much return you can get on money and having it accessible.”
She says how much you need also depends a lot on what kind of insurance you have.
“If you’ve got life insurance, loss of income insurance, car and house and all of that, then a lot of the things that can go wrong will be covered by insurance.”
Another thing to consider if people find themselves in a tight spot is to ask family or close friends for a loan that you can pay back, rather than going to a high-interest lender.
“Family with adult siblings, or even just a group of friends, could possibly get together and say, 'hey can we make an agreement that I can call on you and you can call on me'.”
For people with no money set aside right now, she suggests setting up an automatic transfer of between $10-$50 a week into a savings account.