Consumer Corner: What's a running away fund? - and why you should have one

"...from a bad marriage or an unfulfilling job, the idea is that if you have financial security, you can make an informed decision without having to worry about money"

Life isn't all smiles, like this posed photography: best to have some money aside in case of the worst

You may have joked about having a "running away fund" or been advised by your grandmother to keep one but in all seriousness, it is worth thinking about. A "running away fund" got its name from the idea of saving money so that you can exit a situation. 

It could be anything from a bad marriage or an unfulfilling job. The idea is that if you have financial security you can make an informed decision on such matters without having to worry about money. Many people like to keep their running away funds private but whatever way you wish to do it, having some funds stored away can be a big help with life matters.

Here we look at how best to set up and operate a running away fund. Firstly, start off with a plan and look at your finances to determine how much you can afford to put away. We are living through an era of rising costs right now so putting away a lot might not be a reality for many people but starting small is better than not starting at all.

John Lowe of moneydoctors.ie said that saving money to create a safety net requires a degree of commitment. He points out that the advice is to have an emergency fund in place sufficient to cover all your bills for between three and six months.

“It is in our nature, after all, to spend rather than to save. But if you can motivate yourself to tuck a little bit away each month I promise you’ll never regret it.

“Many people are under the impression that financial planning is a complex process requiring great expertise. In fact, creating a financial plan is a remarkably straightforward activity,” he said.

“Saving can only be achieved by conscious effort. Ideally, you should open your savings account somewhere convenient and arrange to make regular payments into it. For instance, you might set up a standing order to transfer a regular amount each month from your bank account to a deposit account. The important thing is that a savings plan should be regular, and sacrosanct,” said Mr Lowe.

If you feel that looking at your monthly income and outgoings means that you cannot afford to put anything away then take a look to see if you can save money anywhere.

Jonathan Hehir, MD of Insuremyhouse.ie, advises looking into three annual expenditures incurred by most households, which are home, car, and travel insurance.

“There is a lot of competition across all markets, meaning there is great value out there and you could save hundreds, if not thousands of euros, which would greatly alleviate the financial pressure. The key to making these savings is preparation and timing.

“Rather than insurance policies roll-over each year people should actively pull out their policy documents, take note of when they will be due to renew and put a reminder in their phone to start shopping around two to four weeks in advance of this.”

Sarah Rigney from Bonkers.ie said there are many savings accounts that you can use to put away money.

She said there are two main types of savings accounts available in Ireland - the regular monthly saver and the lump sum saver. Then there are various types of accounts such as easy access accounts, notice accounts and term deposit accounts. It is worth doing some research to figure out which type of account would suit you best.

“We recommend paying off any outstanding loans or debt that you owe before you start saving. The interest you’re charged on your debt will usually be far higher than any interest you’d earn on your savings, so it’s more financially beneficial for you to pay off your debts first,” said Ms Rigney.

Also she points out that when you first open a savings account, there may be a fee, which can be as little as €10.

“Aside from this, there are no transaction fees or maintenance charges. However, you’ll need to pay a penalty fee if you withdraw money without notice for term deposit and notice accounts.”

Also be aware too that the interest you earn on your savings is subject to a tax known as Deposit Interest Retention Tax (DIRT). At present, DIRT is charged at 33% on all interest payments. It’s deducted by the account provider before you receive the interest. To open a savings account at the bank you will generally need proof of identification, address and PPSN number.

You can also open as many savings accounts as you wish.

“For example, you might choose to open a term deposit account for long-term savings that has a higher interest rate, and also a demand deposit account for an emergency fund that’s easily accessible,” said Ms Rigney.

Mr Lowe said that saving on a regular basis may not always be easy but it will bring you real peace of mind.

“As with everything, shop around. You could earn a considerably greater return by moving your money to where the best rates are.”