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Saving for an emergency fund

You never know when the unexpected will happen. An emergency fund could be just the safety net you need.

May 2021 – 4 minute read

What’s in this article:

  • What is an emergency fund?
  • Why might you need an emergency fund?
  • How much money should you have in an emergency fund?
  • How to create an emergency fund
  • Do you need an emergency fund if you have insurance?


If life threw something unexpected at you tomorrow, would you be prepared? Whether it’s your laptop going on the blink or you find yourself without a job, having an emergency fund and adding to it regularly means that when you reach a bump in the road, you'll be in a better position to deal with it.

Although planning for the unexpected by building up emergency savings might seem daunting at first, there's no need to file it in the too hard basket. The trick is to work out what expenses you'd need to meet and then start making regular contributions to your emergency fund to help cover these. Just putting a small amount away on a regular basis could make all the difference to your financial situation when the unexpected comes along.

What is an emergency fund?

An emergency fund (or rainy day fund) is simply an amount of money you’ve put aside to cover any unexpected expenses that may come up. That could be anything from needing to have your wisdom teeth taken out at short notice, to having to find the extra cash to pay for car repairs in a hurry. An emergency fund can also help cover your regular expenses if you have a drop in income and need to cover a few months' worth of living expenses.

Ideally, having money set aside in an emergency fund means you won’t have to borrow money or use credit should you have to cover expenses or pay for something out of the blue.

Why might you need an emergency fund?

As the COVID-19 pandemic has shown, you never know what life is going to send your way. Job loss or a drop in income can happen, even to people who might have thought they had job security. Medical emergencies can also come up at any time, or if you have family in other parts of the country or overseas, you could need to make an unexpected trip in a hurry.

How much money should you have in an emergency fund?

We don't like to think about it, but it's worthwhile putting money aside should you be unable to work for a while, either because you lose your job, if you get sick or you have to look after someone else. Aim to have enough in your emergency fund to cover 2-3 months of expenses (if you're self-employed or don't have a regular income you might want to save more).

Your expenses include:

  • Rent or home loan repayments
  • Food
  • Loan and credit card repayments
  • Transport
  • Power and gas bills
  • Internet and phone

Use our budget planner to work out your monthly expenses.

Once you know how much your expenses are, multiply them by the number of months you would like to cover. This will be the savings figure you're aiming for.

What else could your emergency fund help cover?

An emergency fund could help cover the cost of replacing a lost phone, a broken appliance or unexpected medical bill. Some things you might be able to do without, but others not.

A good way to size how much you should budget for is by taking a look around your home to see what you might need to repair or replace (keeping in mind that repairing can cost as much as it does to replace sometimes) or by speaking to some of your friends that have had unexpected medical costs. This should give you an idea of how much you should be aiming for in your emergency fund for these unexpected expenses.


From time to time, cars need to be serviced or repaired - unfortunately some more frequently than others. If you're not familiar with likely servicing and repair costs for the type and model of car you drive, it's worthwhile doing some research to get an idea of what costs could be involved.


If you live away from your family, you never know when you might need to get home in a hurry. It's good to have some money set aside to do this. You can find out how much it might cost you to get home tomorrow by doing some research online.

Still need a figure?

Although we've all got different needs, as a rule of thumb, aim to have $500-$1,000 put aside for short term, unexpected expenses. Saving just $10 a week adds up to over $500 in a year. Even if this isn't enough, having this much spare could go a long way when you need it.

How to create an emergency fund

Starting an emergency fund doesn’t have to take a lot of effort. The trick is to get started and make regular contributions to your emergency fund.

  • Open a savings account that will pay you interest - Because you'll need to be able to use your emergency fund at short notice, you'll need an account that lets you access your money easily when you need to. Look for a savings account that also pays a competitive interest rate. Some accounts also offer bonus interest provided you meet certain conditions such as a minimum monthly deposit and growing your balance by the end of the month, as well as enabling you to set up your emergency fund as a separate savings goal alongside other savings goals within the one bank account.
  • Contribute regularly to your emergency fund - To save you time and to help your savings, once you've set up your account you could arrange for an automatic transfer to be deposited into it every payday.

Do you need an emergency fund if you have insurance?

No matter what stage of life you're at, it's worthwhile making sure you have the right insurance to suit your needs. It's a good idea to review it regularly to ensure you have the right cover. You might want to consider if life insurance and income protection insurance could be right for you. It's important you read all the disclosure documents provided by the issuer of an insurance product before making your choice. Terms and Conditions and exclusions will apply and will differ between products.

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Things you should know

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