Simple thing you need to do to get on top of your finances

If you’re looking to get on top of your finances, the first step is simple: have an emergency fund. There is nothing more important than having money stashed away that you can call on when things go wrong. 
It seems so simple, but too many Australians overlook it. Commonwealth Bank reported that one-in-three Australians couldn’t come up with $500 in an emergency.
We’ll all face an emergency at some point in our lives and when we do too many people are forced to use credit cards or personal loans to get through it. Which leaves us in debt that could take years (and a lot more money in interest payments) to get out of. 
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This is why every financial expert will agree on one thing: now’s the time to start building your emergency fund. 
An emergency fund is an amount of money set aside to cover unexpected financial expenses or emergencies. 
It could be an unexpected job loss, a larger-than-expected dentist bill or your car breaking down at the absolute worst time. Life happens, and our emergency fund is the rainy day fund we’ve put aside to pay for those expenses. 
Think of an emergency fund as your financial safety net, providing you with a cushion to help manage unforeseen events without having to rely on credit cards, sell your investments or disrupt your regular budget.
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If you don’t have money stashed away for an emergency, you can find a difficult situation made a lot worse. If you lose your job and then have to rely on credit cards or personal loans to cover your expenses, you can find yourself in debt that will take years to get out of. 
Or if you have been saving and investing for years, you don’t want to sell those investments in an emergency. You want to leave that money to continue ticking away and compounding. If you sell it, it could cost you tens or hundreds of thousands of dollars in retirement. 
An emergency fund means you can face whatever challenges life throws at you without getting into a really difficult financial situation as well. Rather than going into debt or selling investments, you can live off the money you’ve stashed away until you’re back on your feet. 
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Your emergency fund needs to be able to cover all of your expenses if you lose your job and have no income coming in. 
The general rule of thumb is between three to six months of expenses. But if you’re just starting to build your emergency fund, aim for one month of expenses first and then you can slowly build from there. 
To calculate your monthly expenses, you need to look at how much you spend in a month. And you have to be honest with yourself here. People often trick themselves into thinking they spend less than they actually do or that they have better money habits than they actually have. You might think you could live off $50 a week for food, but you’ve got to ask yourself how realistic that would be. 
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Open up your online banking and take a look at your last few months of spending, and look at everything. Make sure you include your housing costs (mortgage or rent), your living expenses (food, transport, clothes) and any other key costs (medical bills, debt repayments, insurance premiums – make sure you’re capturing everything). 
Once you have your monthly number, that is what you want to save. Over time you want to grow your emergency fund to cover three months of expenses and then eventually six months. 
That way if you lose your job, have a medical emergency or face any other unplanned expenses, you’ll have the money set aside to ensure you don’t need to start living off your credit card. 
Once you start saving your emergency fund, it is tempting to want to do something with that money. How often do you have a pot of money just sitting there in your bank account? 
As tempting as it is to invest that money – don’t. Just think what would happen if your emergency fund is invested in the share market and then the share market crashes right as you get that $1,200 dentist bill. All of a sudden you’re back to credit cards and personal loans. 
You want to put your emergency fund in a high interest savings account. That way, you know that money will be there when you need it and you’ll be earning a return on that money. 
If you have a mortgage, you could also consider putting it in your mortgage offset account. While you’re not earning any interest on your emergency fund, you’ll be avoiding paying some of the interest on your home loan. 
Alec Renehan is the co-founder of Equity Mates. You can hear more from Alec on the Get Started Investing podcast and read his books Get Started Investing and Don’t Stress, Just Invest.