Save For An Emergency Fund

24 Jan 2024

Saving for a rainy day is something older Australians understand well, but it’s worth reminding ourselves of this age-old practice.

An emergency fund sets aside money to cover urgent or unexpected costs. This could be car repairs, unexpected travel, or an urgent medical bill. It provides a financial safety net, so you don't have to dip into your regular income stream if something happens to you or your family.

Be prepared for life's surprises – here’s how.

Set a goal for saving

Even if you put aside a little, there's never a better time to make a start and keep saving. The more you can regularly save, the better.

If you put $20 a week into a savings account, you'll have over $1,040 by the end of the year. That's the start of a good amount of savings to give you some financial breathing space.

Use the federal government savings goal calculator – and see how putting aside a little each week can help.

Plan for the future

If you're thinking long term, it's worth having a bit more put aside. This can help if you know your regular income will be interrupted or a big expense is coming up.

A good target is to have enough in your emergency fund to cover three months of expenses.

Use the federal government budget planner to work out where your money is going.

Once you know your monthly expenses, multiply this by the number of months you would like to cover. This can be your savings goal.

For those still in the workforce, you could also think about income protection to help cover costs if you're unable to work.

How to save for an emergency fund

• Set up a separate savings account

It's a good idea to set up a separate savings account, with the highest interest rate you can find, for your emergency fund. A separate account will mean you're less tempted to dip into it for everyday expenses.

• Automate your savings

You can set up an automatic transfer to your emergency fund from your regular bank account. If you are receiving a salary, you can ask your payroll department if they can pay a small part of your wage directly into the emergency fund account.

You can then set and forget, knowing your emergency fund is growing.

Keep adding to your emergency fund

If you get some extra money during the year, like a tax refund, you can use this to boost your emergency savings.

When to use your emergency fund

Keep your emergency fund for expenses you need to pay quickly when other money isn't available. If it can wait, save up for a few weeks and pay it from this saved money instead.

If you need to dip into your emergency fund, remember to top it up again afterwards.