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Article | 3 minute read

Building an emergency fund

An emergency fund can help you absorb unexpected financial shocks as they come. It’s a pool of money that you can access if something goes wrong, or an unforeseen expense comes flying your way – like your car breaking down or an unexpected loss of income.

We’re all adjusting to our new way of life and it’s understandable to feel a bit stressed for the future. An emergency fund may be a good place to start if you’re looking to help build a sense of financial security and may help you remain on top of your expenses or avoid debt if an unexpected expense does come up.

What’s the magic number?

Short answer is, that’s up to you. 

The amount of an emergency fund may vary from person to person and can depend on many factors such as:

  • your current expenses
  • if you’ve got pets, kids or other dependants to worry about
  • if you’re likely to incur any costs in the future – like that root canal the dentist said you’ll need “in the next five years”

You could start by reviewing your current income and saving about 3 months worth of it. Then, if an unexpected financial event occurs it may give you some time to regroup, reassess and make a plan.

Alternatively, to work out your emergency fund figure you could take the following steps:

  • review your budget
  • calculate how much you spend on essential expenses every month
  • include things like your rent or mortgage payments, school fees, food and utilities
  • times this by three months and set your goal

If you don’t have a budget laid out yet, this is a perfect opportunity to fix that. We have a budget planner tool that may provide a clearer view of where your money is going, what your savings goals are and how you’ll get there.

Learn more

Wait... how much?!

Don’t stress if that seems like a big target right now. It’s great to know what your end goal is, but emergency funds are things that you can grow steadily over time.

Every $10 you put into that fund is helping you get closer to your goal, and that’s $10 you’ll have in your pocket when you need it.

Make your plan

Once you know your goal you can make your savings plan.

Use your budget to see how much you can afford to contribute to your fund every month. This will be different for everyone, but if you can afford it you could start with around 10% of your income.

When you’ve worked out your contribution you can use our savings booster calculator to see how long it’ll take to achieve your goal. 

You should also think about where this money will live.

Whatever account you use, for an emergency fund you may want to make sure you’re able to access your money quickly if needed. Remember though, avoiding temptation is the name of the game – so a dedicated account away from your daily funds may help with this.

You could set up automatic transfers on pay day and opt out of a debit card for your emergency account.

If you need to ‘push the red button’

If you do need to use your emergency fund, you may want to consider topping it back up as soon as you can. This may assist with the next financial emergency you might run into.

If your living expenses change, it’s a good idea to reassess and adjust your savings as necessary.

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The information set out above is general in nature and has been prepared without taking into account your objectives, financial situation or needs.  Before acting on the information, you should consider whether the information is appropriate for you having regard to your objectives, financial situation and needs. By providing this information ANZ does not intend to provide any financial advice or other advice or recommendations.  You should seek independent financial, legal, tax and other relevant advice having regard to your particular circumstances.