| Company | Product | Rate % | Apply |
|---|---|---|---|
 | Virgin Saver | 6.75 |  |
 | USaver | 6.51 | |
 | Online Saver | 6.45 | |
 | High Interest Savings Account | 6.40 | |
 | Reward Saver | 6.20 | |
| Company | Product | Rate % | Apply |
|---|---|---|---|
| USaver | 6.51 |  |
 | iSaver | 6.00 | |
| eSaver | 6.00 | |
| High Interest Savings Account | 6.40 | |
 | Online Saver | 6.00 | |
How to build a savings buffer |
Having a healthy savings account balance is the best way to recession-proof your finances and the most important starting point is to build an at-call emergency buffer.
By Jackie Pearson
14 April 2009
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Your first goal when embarking on any savings plan should be to build an emergency buffer. This will give you at least several months' worth of living expenses in an at-call savings account in case something unexpected happens: a major household appliance needs replacing, your car needs major repairs, you're unable to work due to illness or you lose your job. The knowledge that you have emergency funds on hand means you won't have to panic if the worst happens. It will give you some time to assess the situation and plan ahead with the reassurance you can still meet your short-term commitments. |
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Image by How much is enough?
Financial planners suggest keeping anywhere from three months up to several years' worth of living expenses in an at-call emergency account, depending on your life stage, but at least a three- to six-month cash supply seems like a sensible starting point.
You will need to put together a household budget to decide how much to keep in your emergency savings fund.
List your fixed costs, those items you would have to keep paying if there was a sudden drop in your income: rent or mortgage, rates, electricity, telephone, groceries, insurance premiums, credit card and loan repayments, transport and car running costs, health care and prescriptions.
Add up your fixed costs for one month and then multiply by three or six (depending on how many months you aim to cover) to come up with your emergency buffer savings target.
Spend less
Then look at how quickly you can build your buffer. This may involve cutting back your discretionary expenses, those items you could manage to do without if there was a sudden drop in income: eating out, concerts, expensive clothes, pay TV, your teenager child's mobile phone.
Any savings you make by curbing discretionary expenditure can be put into your buffer savings account.
Pay yourself first
Let's say you goal is to build a $12,000 buffer. If you currently have no money in the bank you will need to save $500 each month for nearly two years (in an account paying 5% interest) to reach your goal.
If you already have $3000 in savings, you will need to find an extra $350 per month to build your buffer within two years. If you want to achieve your goal sooner you will need to save more each month.
The key to achieving your savings goal is to set up an electronic funds transfer so that your monthly savings allocation is automatically transferred from your everyday account to your savings account before you have a chance to spend it.
Find the right account
It's also essential to keep your buffer in an account that will maximise the interest you earn. Look for an at-call savings account with no fees, no minimum deposit and with a healthy ongoing interest rate.
Once you've got your emergency buffer locked away you can set yourself another savings goal - a well-earned holiday or a new car - safe in the knowledge that you have some money tucked away for a rainy day.
Related Links
- Best savings accounts
- High interest savings accounts
- Debts and Doubts: Managing your money
- Everyday Online Savings Accounts
- BankWest Smart eSaver
- ING Direct: Savings Maximiser