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Speaker 1: How to build emergency money from nothing the right way

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Speaker 1: the first time. Hi, reminder, and welcome back to start

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Speaker 1: here the very special mini series within Sugar Mama's Fireplay,

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Speaker 1: where I answer your real life money questions with practical,

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Speaker 1: empowering steps to help you get started now. As always,

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Speaker 1: all of my content is general in nature and for

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Speaker 1: educational purposes only, so please always bear that in mind. Now.

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Speaker 1: Today's question comes from James, who wrote, Hi, Canna, My

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Speaker 1: wife and I have just finished reading your book Mindful Money,

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Speaker 1: which has been so insightful, and we are really keen

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Speaker 1: to apply your strategies, in particular debt recycling. The only

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Speaker 1: obstacle is emergency money. From your book, we've worked out

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Speaker 1: that we need around eighty thousand dollars, but the thing is,

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Speaker 1: right now, we don't even have one thousand dollars, which

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Speaker 1: is a little embarrassing to admit. So our question is

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Speaker 1: how do we build this emergency fund quickly so that

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Speaker 1: we could get started with building our financial future? All right, James,

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Speaker 1: thank you so much for your honesty, and I want

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Speaker 1: to say this clearly from the outset, there is absolutely

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Speaker 1: nothing embarrassing about where you are starting from right now

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Speaker 1: in fact, what stands out to me is not where

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Speaker 1: you are, is that you've actually noticed this before something

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Speaker 1: bad has happened and before life has forced this lesson

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Speaker 1: upon you. And that is a huge blessing. You're incredibly lucky.

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Speaker 1: And the funny thing with emergency money is that you

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Speaker 1: don't really appreciate it when everything is going swimmingly well.

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Speaker 1: You appreciate it when something really bad happens, something suddenly,

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Speaker 1: you know, out of the blue. That's when you think

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Speaker 1: your lucky stars that you had emergency money. So in

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Speaker 1: today's episode, I want to talk about how I can

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Speaker 1: help you build your emergency money calmly, intentionally, and properly,

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Speaker 1: not in a rushed, chaotic, panicked way, and not in

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Speaker 1: a way that actually derails the rest of your financial journey.

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Speaker 1: Because I get that you're keen, I get that you're motivated,

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Speaker 1: and I get that we need to overcome this little

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Speaker 1: obstacle so that you can swim off into the sunset

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Speaker 1: and build realistic, authentic financial freedom for your family. So

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Speaker 1: before we get practical, I really want to normalize something

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Speaker 1: that I think is important that everyone should know and understand. Now,

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Speaker 1: these stats come from the ABS as well as finder,

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Speaker 1: and they shared that one in four Australians couldn't raise

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Speaker 1: two thousand dollars in an emergency without having to borrow

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Speaker 1: from someone or an institution such as buy now, Pay later,

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Speaker 1: or like a credit card provider. Also, one in ten

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Speaker 1: Australians have absolutely no savings at all, not even money

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Speaker 1: set aside for a rainy day. They're literally living paycheck

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Speaker 1: to paycheck. So I'm not sharing this to make you

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Speaker 1: or anyone else feel complacent where you think, oh, well,

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Speaker 1: we're all in the same boat together, so we don't

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Speaker 1: need to worry. I'm sharing this to highlight the massive

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Speaker 1: gap in financial literacy because emergency money is one of

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Speaker 1: the most important foundations of financial wellbeing, yet it is

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Speaker 1: quite often misunderstood, underestimated, or skipped entirely, and that really

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Speaker 1: worries me. So if you're listening and thinking, well, how

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Speaker 1: did we let this happen? How do we manage to

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Speaker 1: get in a position where we were walking away exposed

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Speaker 1: to so much risk without even like cottoning on, Well,

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Speaker 1: let me reframe it for you. Think about it this way.

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Speaker 1: How lucky are you you that you noticed this gap

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Speaker 1: in your financial situation and your financial safety net before

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Speaker 1: life forced that frightening lesson upon you. You know, many

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Speaker 1: people don't get that warning, and if you just jump

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Speaker 1: on the go fund me pages, you'll see those people

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Speaker 1: and the harsh reality of what they're struggling with and

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Speaker 1: what their future looks like. Now, you are fortunate and

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Speaker 1: that you've learned this lesson now and can do something

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Speaker 1: about it. So coming back to James, is mentioned in

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Speaker 1: his message to me that he needs around eighty thousand

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Speaker 1: dollars for his family in emergency money. So I want

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Speaker 1: to take a moment to acknowledge. Obviously, eighty thousand dollars

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Speaker 1: is a huge amount of money. It's a big, intimidating

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Speaker 1: number and for most people, including myself, you know, I

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Speaker 1: would feel very overwhelmed thinking I've got to quickly come

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Speaker 1: up with this type of money. But let me be

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Speaker 1: very clear, and hopefully this gives you a sense of relief.

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Speaker 1: This eighty thousand dollars figure for emergency money does not

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Speaker 1: mean that you need to wake up tomorrow and have

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Speaker 1: eighty thousand dollars in your bank account. Emergency money is

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Speaker 1: built in stages, over time, with intention and patience, and

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Speaker 1: I discovered this myself when we had an emergency and

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Speaker 1: lost all of our emergency money in one big hit,

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Speaker 1: and I had to rebuild it again from scratch. It

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Speaker 1: took me over a year and a half. So this

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Speaker 1: is not about speed. It's really about strength and building strength.

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Speaker 1: So let's move on to the practical sides now that

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Speaker 1: we understand the blessings that have come from this and

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Speaker 1: of course the I guess divine timing of it all

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Speaker 1: if you like, So before a single dollar is saved,

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Speaker 1: we need to think about building the right home for

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Speaker 1: this emergency money. Now for homeowners, and I'm assuming James

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Speaker 1: is a homeowner because they're talking about wanting to do

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Speaker 1: a det recycling strategy, there are two excellent options to

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Speaker 1: have this emergency money parked. The first option is an

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Speaker 1: offset account. You know, you can open or use an

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Speaker 1: offset account against your mortgage, and I would recommend if

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Speaker 1: you do this, you don't have the name offset account.

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Speaker 1: You use the nickname feature within your Internet banking and

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Speaker 1: call it our emergency money. Now, whilst your emergency money

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Speaker 1: sits there, it's accessible at all times. But the thing

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Speaker 1: is that money is not actually invested, and of course

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Speaker 1: all the money sitting in your offset account helps reduce

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Speaker 1: the interest charged on your home loan, so your money

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Speaker 1: is actually quietly working for you whilst you know it

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Speaker 1: waits and slowly builds up. Option number two, which is

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Speaker 1: using your redraw facility, and this is my preferred option

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Speaker 1: now for so many people, this option is better because

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Speaker 1: it really taps into the psychology of money. For example,

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Speaker 1: you know you have one hundred thousand dollars mortgage and

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Speaker 1: you save one thousand dollars. You transfer that one thousand dollars,

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Speaker 1: which obviously in this case represents the start of your

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Speaker 1: emergency money, and you transfer it straight onto your home loan,

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Speaker 1: the eight hundred thousand dollars home loan, so immediately, in

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Speaker 1: doing this, your balance comes down from eight hundred thousand

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Speaker 1: dollars to seven hundred and ninety nine thousand dollars. But

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Speaker 1: that one thousand dollars, of course, is still accessible if

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Speaker 1: you need it in an emergency. So if these two

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Speaker 1: have the same financial benefit, why do I like the

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Speaker 1: idea of a redraw facility over an offset account. Well,

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Speaker 1: I'll do a separate episode around this, but it really

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Speaker 1: helps obviously reduce the interest immediately, but it also makes

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Speaker 1: it a bit harder to tap into that money, like

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Speaker 1: to casually dip into it, because the moment you take

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Speaker 1: money out of your redraw facility, you watch your mortgage

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Speaker 1: jump back up a bit, and that can really turn

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Speaker 1: you off the whole objective of trying to reduce your

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Speaker 1: non deductible debt and be mortgage free ultimately. So this

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Speaker 1: really does help create a strong sense of progress and discipline.

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Speaker 1: It forces you to really pause and think before you

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Speaker 1: do that transfer taking money out of your homeown obviously

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Speaker 1: into your everyday spending account. And you know, regardless of

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Speaker 1: which way you choose, the offset account or the redoor

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Speaker 1: for this becomes your central landing place for your emergency

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Speaker 1: money to be deposited and obviously grow slowly and steadily

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Speaker 1: over time as it gives you more and more comfort

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Speaker 1: and peace of mind. And once this is set up,

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Speaker 1: it actually becomes so much easier to see it start

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Speaker 1: to grow. So now that we've got the structure correct

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Speaker 1: and ready and working for you, the next step is

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Speaker 1: to make emergency money a non negotiable priority in your

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Speaker 1: cash flow in your budgeting system. Now you do this

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Speaker 1: by sitting down together as a family, reviewing your budget

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Speaker 1: and deciding what you can realistically commit to each month,

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Speaker 1: and yes, I will admit this may mean temporarily cutting

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Speaker 1: down or cutting things out completely to help build that

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Speaker 1: money up as quickly and as efficiently as possible. So say,

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Speaker 1: for example, you go through the budget and you find

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Speaker 1: a couple of things you think you know, we'll cut

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Speaker 1: down on this, or we'll change that schedule, or we'll

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Speaker 1: switch plans or cut that subscription, whatever it may be.

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Speaker 1: And say you managed to come up with, say an

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Speaker 1: extra five hundred dollars per month. You need to treat

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Speaker 1: that five hundred dollars per month as a bill like

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Speaker 1: you would as a mortgage expense or repayment or even

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Speaker 1: a living expense. Then this part is actually crucial. It's

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Speaker 1: a non negotiable. You go and automate that five hundred

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Speaker 1: dollars in this example, so that five hundred dollars comes

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Speaker 1: out the day after you're paid, or within forty eight

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Speaker 1: hours of being paid, so that if you get paid

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Speaker 1: on say long weekend or know a normal weekend or

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Speaker 1: on a public holiday, that money can come out shortly.

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Speaker 1: And by doing this, you are taking the money out

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Speaker 1: before any lifestyle spending kicks in or before any temptation

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Speaker 1: or distractions come your way. And what I actually recommend

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Speaker 1: you do is try and set this up as an

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Speaker 1: automatic transfer, and that will mean that it actually happens.

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Speaker 1: You don't have to think about it. You don't know

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Speaker 1: what it needs to worry about forgetting or adding it

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Speaker 1: to your list of things to do. It is simply done.

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Speaker 1: Another option, of course, is and I think this is

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Speaker 1: a brilliant one, is to go an increase your mortgage

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Speaker 1: repayments by that exact figure, which is in this case

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Speaker 1: five hundred dollars. So say your mortgage repayment is four

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Speaker 1: thousand dollars per month. To help build those emergency money,

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Speaker 1: assuming you're using your REDOL facility, you would increase it

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Speaker 1: to four five hundred dollars per month. Now I need

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Speaker 1: to say this clearly. If it's not automated, it suddenly

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Speaker 1: becomes optional, and optional never really builds great financial foundations.

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Speaker 1: And also I should say every time your income increases

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Speaker 1: or your expenses adjust or fall even you can actually

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Speaker 1: increase this amount before lifestyle creep sneaks in. So you

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Speaker 1: will need to regularly review your budget and keep a

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Speaker 1: close eye for all the additional savings opportunities that will

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Speaker 1: get you to that eighty thousand dollars figure. All right,

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Speaker 1: we need to talk about really what qualifies as an

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Speaker 1: emergency money where you have permission to take money out

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Speaker 1: of this account. An emergency is something that is typically unexpected,

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Speaker 1: It is absolutely necessary, and it is avoidable. It's not

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Speaker 1: a holiday, it's not an upgrade of lifestyle. It's definitely

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Speaker 1: not any discretionary spending, and it's not something that can actually, really,

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Speaker 1: if we're honest, can wait. This is the money that

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Speaker 1: protects you and it's not to be messed around with. Now,

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Speaker 1: as mentioned, this may take some time to build. Eighty

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Speaker 1: thousand dollars is not a small amount of money, and

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Speaker 1: it may be tempting along the way to quit and

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Speaker 1: just not even bother trying at all with your finances,

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Speaker 1: or perhaps to skip this step of building up emergency money,

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Speaker 1: or to get maybe halfway or two thirds of the

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Speaker 1: way and then just go, you know what, stuff, And

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Speaker 1: we're going to move on to those other goals. But

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Speaker 1: let me share with you how you stay motivated from

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Speaker 1: the start all the way to the finishing line of

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Speaker 1: eighty thousand dollars. So what I recommend is constantly tracking

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Speaker 1: the progress even when it feels slow, dull, and boring,

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Speaker 1: you track the balance of your emergency money as often

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Speaker 1: as you can. You track how much interest you're actually

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Speaker 1: saving against your mortgage. As you see your redoor facility

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Speaker 1: or your offset account slowly grow, and you start to

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Speaker 1: track and consider what exactly you have protected from your

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Speaker 1: emergency list as this money builds. So, for example, you

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Speaker 1: may have figured out that eighty thousand dollars represents taking

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Speaker 1: three months to find another job. It perhaps represents a

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Speaker 1: month worth of medical expenses. Perhaps it covers international flights

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Speaker 1: to see family members. As you see that number build,

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Speaker 1: you can see what that number represents. It represents airfare,

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Speaker 1: It represents taking time off to find not just any job,

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Speaker 1: but the right type of job. It represents a medical

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Speaker 1: expense that could happen that money. That number now has

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Speaker 1: a real why behind it has a real meaning. You

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Speaker 1: can actually put it and attached to something that is

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Speaker 1: real in your life. That is a real risk that

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Speaker 1: you are now intentionally protecting. Now, of course, don't obsess

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Speaker 1: over it, but do check it intent And here's something

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Speaker 1: important that happens here before you see the big numbers,

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Speaker 1: even actually the very start when you have your first

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Speaker 1: one dollar, ten dollars, one hundred dollars, or one thousand dollars,

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Speaker 1: You start to feel a little bit different when you

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Speaker 1: look at this account. You feel calmer, you feel less reactive,

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Speaker 1: you feel more confident, and you feel more in control

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Speaker 1: and even proud. And as that number gets bigger and bigger,

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Speaker 1: so do all those wonderful, empowering feelings. And as that happens,

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Speaker 1: this tells you something important. It tells you that the

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Speaker 1: system is working and working for you, and it will

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Speaker 1: more than likely get easier and faster as you approach

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Speaker 1: that eighty thousand dollar finish line. So what you're really

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Speaker 1: doing here isn't just saving money. You're actually becoming the

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Speaker 1: kind of person who is really prepared, proactive, and financially resilient. Now,

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Speaker 1: how do we look at speeding things up safely? Because,

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Speaker 1: of course, just like you want to get this goal

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Speaker 1: ticked off and done and out of the way so

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Speaker 1: you can sink your teeth into the juicy, exciting goals

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Speaker 1: like investing, and in your case, you want to look

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Speaker 1: at debt recycling. This is what we do to speed

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Speaker 1: things up. Any ad hoc money that comes your way

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Speaker 1: must get redirected straight into your emergency money. I know

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Speaker 1: it may be tempting you to think, oh, look I

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Speaker 1: just got a bonus, I'll kick start that share portfolio.

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Speaker 1: Please don't so things like tax refunds, bonuses, side hustle income,

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Speaker 1: cash gifts inheritances. I know you want to get started,

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Speaker 1: but if you can use this money to build this

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Speaker 1: financial foundation, it's going to really help you. And another

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Speaker 1: great hack is looking at my hitless strategy, which is

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Speaker 1: typically something I use to help people pay off from

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Speaker 1: debt in their life, like credit card debt. But this

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Speaker 1: is essentially where you brainstorm as many ideas as possible,

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Speaker 1: no matter how wild and crazy they may be. But

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Speaker 1: there are ideas that will help you raise cash quickly.

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Speaker 1: So things like selling on use items like outgrown baby stuff,

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Speaker 1: kids stuff, any unused sporting equipment, car accessories. You might

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Speaker 1: look at maybe taking on some extra work, some freelancing work,

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Speaker 1: contracting work, or do some overtime, or you know, look

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Speaker 1: at some sort of short term side gigs, or perhaps

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Speaker 1: you go straight to the source and ask for a

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Speaker 1: pay rise or apply for a promotional other higher paying roles,

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Speaker 1: or perhaps this is now you're signed to look at

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Speaker 1: a new job somewhere else where there is bigger, better

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Speaker 1: pay opportunities. And remember, whilst you're building this emergency money,

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Speaker 1: you were not here forever. This is just a temporary

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Speaker 1: focus and you were using this time to build your

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Speaker 1: financial safety and of course financial foundations. So it really

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Speaker 1: is head down, bum up and mind open, and you

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Speaker 1: can definitely do this. You can definitely get to that

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Speaker 1: eighty thousand dollars figure and you most definitely will not

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Speaker 1: regret it once you make it there. Now, this next

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Speaker 1: step is really important, so please make sure you continue

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Speaker 1: on listening. Building emergency money as frustrating, as slow as

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Speaker 1: it may feel, it does not mean that your financial life,

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Speaker 1: that is, the other areas of your financial life are

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Speaker 1: on hold. You don't need to press pause on everything else.

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Speaker 1: Whilst your emergency fund is building. You can still go

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Speaker 1: and review your superannuation. You know the fees, check how

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Speaker 1: it's invested, ensure that it matches your risk profile, and

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Speaker 1: understand exactly how much you're really going to need in retirement.

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Speaker 1: You know, run the numbers, what's the total figure that

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Speaker 1: you need, and buy what age and what sort of

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Speaker 1: level of contributions you're going to need to sort of

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Speaker 1: look at to help make sure that you get there

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Speaker 1: and to make sure that money as long as you

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Speaker 1: need it to during retirement. Also, whilst you're watching your

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Speaker 1: emergency money, you can also go and review all of

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Speaker 1: your personal and general insurances, in particular your income protection

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Speaker 1: and trauma cover because they're going to help reduce those

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Speaker 1: risks that come with something like a debt recycling strategy.

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Speaker 1: And of course you can look at your other forms

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Speaker 1: of emergency protection, as I mentioned, things like checking in

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Speaker 1: to see how much annually you have accumulated, how much

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Speaker 1: sickly you've got accumulated, perhaps you have even long service leave.

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Speaker 1: What does the job market look like if you were

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Speaker 1: to go and change jobs or suddenly lose your job.

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Speaker 1: You know, these are the times you can really use

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Speaker 1: this time to make yourself feel educated informed as to

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Speaker 1: all the other wider things that are happening in your life,

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Speaker 1: and you really are preparing yourself. And of course there's

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Speaker 1: the educational side. Whilst you're watching that emergency money slowly

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Speaker 1: and steadily built, you learn about the details of debt recycling,

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Speaker 1: how to manage those risks, What do those risks really

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Speaker 1: look like to you? Where do you want to go invest,

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Speaker 1: you know, debt recycling is borrowing to invest. Are you

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Speaker 1: going to be looking at shares? Are you going to

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Speaker 1: be looking at a property portfolio? Where do you want

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Speaker 1: to buy? Why? How are you going to structure? Are

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Speaker 1: you going to buy in and invest in chunks of say,

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Speaker 1: passls of ten thousand dollars at a time? Are you

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Speaker 1: going to do it in one big hit? And of

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Speaker 1: course you can sort of start looking at your cash flow.

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Speaker 1: What is this going to look like? Can you afford

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Speaker 1: to service these loans? How do you want to treat

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Speaker 1: the income that comes from these investments, whether it be

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Speaker 1: rant or whether it be dividend A you're going to

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Speaker 1: reinvest or you're going to use that income to help

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Speaker 1: pay down the mortgage or help pay down the actual

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Speaker 1: investment loan, And how you're going to look at servicing

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Speaker 1: it all. You know, this is something that's really important

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Speaker 1: and I will be making another episode for you next week.

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Speaker 1: I promise about how to proactively intelligently manage all the

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Speaker 1: risks that come with debt recycling, so you do it

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Speaker 1: in a safe, sound way that works to your long

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Speaker 1: term and short term of course financial advantage. But the

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Speaker 1: point is when that emergency money is ticked off, you

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Speaker 1: are not starting from scratch because you've actually invested tying,

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Speaker 1: being organized and prepared, and you can literally hit the

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Speaker 1: ground running and step forward with so much financial clarity

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Speaker 1: but also momentum. All right, now, this is where things

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Speaker 1: get really exciting, because once that emergency money is in place,

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Speaker 1: it's not just the debt recycling strategy that opens up,

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Speaker 1: but there's actually so much more to look forward to

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Speaker 1: once you get there. You know, once that emergency money

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Speaker 1: is ticked off, you have the freedom to start thinking

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Speaker 1: about extra mortgage repayments. After all, you've found this extra

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Speaker 1: eighty thousand dollars by no plucking and pulling apart your budget.

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Speaker 1: You now might be able to maintain that and start

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Speaker 1: making even more repayments towards your mortgage and whatt yourself

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Speaker 1: save even more time and money. Or perhaps you can

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Speaker 1: start looking at that say five hundred dollars per month

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Speaker 1: you've been managing to save, and now look at salary

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Speaker 1: sacrificing or making after tax contributions where perhaps you rebalance

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Speaker 1: each other's superannuation if there is a bit of a

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Speaker 1: gap between the two of you, or perhaps you look

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Speaker 1: at using that money to start investing on top of

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Speaker 1: a debt recycling plan where you know, you go and

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Speaker 1: borrow to invest, but you also have a regular investment

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Speaker 1: plan of say five hundred dollars per month. Now you

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Speaker 1: use what you have learnt, what you have gained by

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Speaker 1: doing the hard yards and building up your emergency money,

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Speaker 1: and use it to serve and strengthen your long term

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Speaker 1: financial security. And as that passive income grows over time,

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Speaker 1: it doesn't just build your financial wealth. It supports your

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Speaker 1: emergency money. It supports your confidence and your faith and

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Speaker 1: of course of course your financial choices. You know you're

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Speaker 1: no longer building fragile, rushed wealth. You're building something resilient.

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Speaker 1: So James, and to everybody listening right now, who can

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Speaker 1: relate to James's question and his situation and his desire

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Speaker 1: to just get the emergency money sort as you can,

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Speaker 1: you know, work on the big, exciting, sexy stuff. Here

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Speaker 1: is my takeaway for you. Yes, building emergency money can

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Speaker 1: feel painfully slow at times. I know it. I've been there.

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Speaker 1: I hated it. It was so frustrating, And yes, it

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Speaker 1: feels so boring, particularly when you compare it against like investing,

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Speaker 1: which is empowering, exciting, and you know, liberating. But at

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Speaker 1: the end of the day, this financial foundation of emergency

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Speaker 1: money allows everything else to work for you. So James,

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Speaker 1: you do not need to be embarrassed about being behind

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Speaker 1: when it comes to emergency money. You are most definitely

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Speaker 1: not failing at all. You're actually starting to do things

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Speaker 1: the right way, sensible way, the rock solid way. You're

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Speaker 1: building a financial life that can absorb life's natural normal shocks.

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Speaker 1: You're building something that helps intelligently and proactively protect your family,

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Speaker 1: which means everything. And at the same time, you're growing

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Speaker 1: with financial confidence and that's something to be really deeply

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Speaker 1: proud of. So please start here, build the foundation, trust

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Speaker 1: the process, and everything else will become possible because you

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Speaker 1: stick to it from the beginning, the middle, all the

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Speaker 1: way to the end. That finished line. So, thank you

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Speaker 1: James for sending in his question. I greatly appreciate, and

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Speaker 1: for everyone else who's listening right now, I have popped

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Speaker 1: my email address in the podcast notes so that you

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Speaker 1: can reach out to me at any time with your

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Speaker 1: own start here question. So, James, thank you so much

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Speaker 1: for sending in your question. I greatly appreciate it. And

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Speaker 1: to anyone else who's listening right now, I've popped my

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Speaker 1: email address in the podcast notes so you can reach

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Speaker 1: out to me and confidentially and confidence send your start

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Speaker 1: here question to me so that I could answer it

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Speaker 1: on our next episode. Now, don't forget, I'll be sharing

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Speaker 1: another episode this coming Friday, where I talk about these

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Speaker 1: seven Golden rules that I follow when it comes to

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Speaker 1: debt recycling, how to do it sensibly, wisely, and to

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Speaker 1: help proactively minimize those risks that come with a high

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Speaker 1: risk strategy like debt recycling or right If you won't

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Speaker 1: have a fantastic weekend, and did you leave me a

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Speaker 1: rating and a review? I would greatly appreciate it. Chat now,