Why don't we put money away for emergencies?

Optimism can be a positive trait, it can help us get out of bed in the morning and look forward to the future. But optimism can also stop us from preparing for rainy days because optimistically we don’t expect them to come. This optimism can leave us vulnerable to a rainy day.

We all know rainy days happen, but we tend to think they will happen to someone else, not us. We tend to think positive events will happen to us in the future and underestimate the likelihood of negative events happening.

Researchers describe this tendency as optimism bias, finding about four in five of us think this way.

Many of us are unprepared

In Australia, many of us are not prepared for negative or emergency events.

CommBank research found:

• One in three Australians say they couldn’t come up with $500 in an emergency
• One in three Australians say they couldn’t handle a major unexpected expenses
• One in two Australians say they wouldn’t have enough to handle a temporary loss of income

How can we start to prepare?

When we don’t expect the unexpected, we don’t prepare by putting money away just in case.

Then when emergency strikes, we may be hit with a greater financial cost. We might need to borrow money, dig deep into savings we had put away for a house deposit or a holiday. It also may impact the money you have to spend from your daily budget. 

But it doesn’t have to be this way. The best way to start preparing for a rainy day is by setting some money aside in a rainy day fund, which you can use for unexpected bills such as car repairs or medical expenses.

Once you’ve done that, you can work towards building up your emergency fund, which is a buffer you don’t touch unless you experience a bigger or more long-term change to your finances through loss of income because you need to care for a loved one, recover from illness or unemployment.