It’s been one of those weeks! In one day, I knocked my cup of tea on to my open laptop. There ended the life of my poor laptop. Thankfully, it was over two years old and on its way out anyway. Still…
Then later the same day, I came home from pizza at the park with the kids to discover our gas hot water system had died. Completely! I had to tell the kids there would be no baths that night. Thankfully, the kids were not upset at missing bath time.
All in all, over $2000 of unexpected expenses in one day! That’s where a Mojo Account comes in!
Rainy Day Savings
Start the habit of putting aside money for a rainy day or creating a Mojo Account, as the Barefoot Investor, Scott Pape calls it.
When I first moved out of home rent for a 2 bedroom unit, 5 minutes from the city was $85 a week. My sister and I could get our grocery shopping done for $20 a week.
Crazy, except, I wasn’t earning a packet then either as a full time Uni student. Still, every fortnight I made it a priority to stash $25 away into a separate savings account.
Why? The reality is most of us have days, weeks or even seasons like I described above.
Your car breaks down and ends up costing more than you expect…
You fall sick and need more time off work than your sick leave allows…
A friend goes through a crisis and you want to be able to help them out…
As I experienced recently, a Mojo Account or emergency fund gives you financial peace and security. It also enables you to act more quickly in an emergency and importantly, protect you from getting into unnecessary debt. It gives you choices!
For me personally, my Mojo account meant I could get a new hot water system installed straight away. Two days later we had hot water again!
At the end of the week the laptop was still not functioning so I made do with a Samsung tablet. Update: A replacement laptop has now been organised. Hurrah!
So what is a Mojo account?
A Mojo account or an emergency fund is cash that you’ve saved up for the sole purpose of helping you maintain your normal lifestyle through the emergencies or unexpected expenses that can happen in life.
These savings can be used to pay for unexpected expenses such as car repairs, medical expenses, a death in the family or hardship resulting from unemployment.
It’s different from splurge or blow money! For example, a trip to Bali because Jetstar has flights on sale is not considered an emergency.
How much should you have in your Mojo Account?
It is generally recommended that an emergency fund be able to cover 3 months of living expenses, though Suze Orman of Financial Solutions for You suggests 8 months.
The exact amount will vary depending on your circumstances. For example, whether you are renting or paying off a mortgage, support kids, pets, in-laws etc.
Ok, you’ve worked out how much 3 months of living expenses is for your household and it seems way too hard to save that much!
The key is to start small!
Set a goal to save an initial amount from $1000 to $2000, and put aside a regular amount of $100, $50 or even $25 from your current living expenses.
The easiest way is to set up an automatic transfer from your everyday bank account to a separate savings account on a fortnightly or monthly basis.
One way to increase your savings amount more quickly is by selling off stuff you no longer need.
Then don’t touch the money!
While it may be tempting to use the money to splurge with, as the Barefoot Investor recommends, set aside a splurge fund for those purchases instead.
Related Post: Barefoot Investor Bank Accounts
Honestly, I am still in the process of saving towards 3 months worth of living expenses.
After using my Mojo account for the replacement of the gas hot water system, I need to re-focus my efforts on replacing those savings, as well as adding to it.
Online Savings Comparison
Most of the time it is better to set up a separate high interest, online savings account for your emergency account.
Name it “My Mojo Account” or something similar.
Some people may choose to keep their emergency savings in a home loan offset account to reduce the interest payments on their mortgage.
You can check out this comparison tool for current interest rates for online savings accounts.
I encourage you…
Whatever your income level, it makes a difference to your long term health and well being to have your own Mojo account. So start today!