How a cash cushion puts your mind at ease

What if I told you there was a way to boost your IQ, strengthen your self-control, think more clearly and even improve your sleep?

Maybe you’re thinking it’s exercise. Or some new miracle med.

Whatever it is I’m flogging, it can’t be as good as all that.

But it is.

It’s a cash cushion. 

An emergency fund. It’s saving enough money to absorb the inevitable shocks that come along in all our lives. That could be a health scare, a natural disaster or even when your mechanic gives you the bad news that your car’s tyre doesn’t just have a nail in it – you need a whole new one (which is what happened to me).

If you haven’t started your emergency fund yet, Sorted typically recommends aiming for $1000, then building it up till you’ve set aside three months’ worth of expenses. Learn more in our guide.

Budget running tight? Give yourself some slack.

When our budgets are a bit too tight – and let’s face it, the costs of living and lifestyle inflation probably guarantees that they are – what we need is some slack.

Without it, we’re all just one unexpected event away from going into debt.

Or going without.

What not having a cushion does to our heads: it’s mentally exhausting.

There has been ground-breaking research on what it feels like to not have a cash cushion. This goes way beyond just counting the number of people who don’t have any buffer at all. Rather, these studies have focused on what not having any slack in our budgets – and in particular the feeling of not having enough – does to our heads and how well we think.

Turns out that going without an emergency fund is not just risky – it’s debilitating. Even if a disaster never occurs, living so close to the edge means we must cope with being loaded down with the stresses and anxiety that come with knowing that something might happen.

If times are tough and we’re preoccupied with money worries, we’re more likely to be more impulsive, give in to temptations, muddle our thinking and get even deeper into the money mire.

How not having a cushion feels: it’s like no sleep.

One Princeton study even showed that increased money concerns caused a fall in people’s intelligence by 13 or 14 IQ points and lowered their ability to think clearly even more than if they had gone a night without any sleep.

Apparently we get ‘dumber’ when under financial stress – our ability diminishes because of our tight circumstances.

Take that stress and feeling of scarcity away, however, and our head space suddenly frees up and we have the mental bandwidth once again to think clearly.

You owe it to yourself to lift your stress, your anxiety.

Of all the companies or people you owe money to each month, you owe it most to yourself to build an emergency fund.

That’s why here at Sorted we’re all for paying yourself first – before anyone else – with an automatic payment to a savings account each payday. It takes all of 15 minutes to set one up online, and if you ‘set and forget’, it will be ‘out of sight, out of mind’, slowly just building up in the background.

You’ll find that putting away even just 1% of your income can grow into a sizable amount. The goal is to set aside enough to cover three months’ worth of expenses just in case.

Ready to give yourself some slack? Our savings calculator can show you how quickly yours can pile up.

And even if you never need to tap into your emergency fund, simply lifting that heavy mental load of anxiety that comes with money worries will work wonders. The research is on your side: you’ll be smarter, more in control, thinking more clearly.

And hopefully sleeping better, too.