How to build up your emergency savings to cover unexpected costs

Using a credit card or overdraft to bail you out often has unintended consequences: it runs up costly debt that has a way of sticking around, often going unpaid before something else unexpected crops up. Having your own emergency money at the ready keeps you from sliding into sticky debt and paying heaps in interest and fees.

The answer depends on your lifestyle. As a rule of thumb, we recommend starting with a safety net of $1000, then building it out to cover three to six months’ of your expenses. But your needs will vary, and it’s best to start where you can, even with $50.

Your emergency fund should be easily accessible but separate from your daily spending money. A high-interest savings account is a great option because you can get to it and it earns some interest. (Here are some you can compare.) Avoid investing your emergency fund in shares or other volatile investments, as you need this money to be safe and readily available when emergencies arise. Keeping it in a dedicated account helps you resist the temptation to dip into it for non-emergencies.

Building your emergency fund should be a priority, but it’s okay to take it step by step. Aim to save three to six months’ worth of living expenses. Start with a smaller goal, like $100 or $1000, and gradually increase it. Consistency is key, so set up automatic transfers from your main account to your emergency fund. Don’t stress if it takes time – every little bit helps, and even small, consistent contributions will add up. Remember, you’re making progress towards your financial security.

It’s tough, but possible with small, consistent efforts. Look for ways to cut back on non-essential expenses. Automate your savings with small, regular transfers to your emergency fund. Small amounts add up over time, and even having $10 stashed away for a rainy day can come in handy. Consider picking up a side gig or selling unused items to boost your savings. The key is to start now and build over time.

An emergency fund is meant to cover unexpected, urgent expenses that you can’t plan for specifically. This includes things like medical emergencies, car repairs, home repairs, job loss and urgent travel. It can also be for unexpected manaakitanga (hospitality), koha or tangi. It’s there to help you handle life’s surprises without going into crippling debt. Think of it as your financial safety net, providing peace of mind and stability when the unexpected happens.

You don’t want to go there. It’s best to keep your emergency fund strictly for true emergencies. Using it for non-urgent expenses can leave you vulnerable. If you’re tempted to dip into it, ask yourself if the expense is truly necessary and urgent. Having separate accounts for planned expenses and goals can help you avoid using your emergency fund for non-emergencies.

If you’ve had to dip into your emergency fund, it’s important to replenish it as soon as possible. Start by reviewing your budget to find areas where you can temporarily cut back on spending. Redirect any extra money, such as tax refunds or work bonuses, into your emergency fund. Set up automatic transfers to rebuild your fund gradually. The aim is to restore your financial safety net as soon as, so you’re always prepared.

Building an emergency fund is a great initial goal when you’re saving for the first time, and you’ll have other goals that will ideally keep you constantly setting aside money.

Generally speaking, it’s best not to invest your emergency fund in shares or other volatile investments. The primary purpose of your fund is to provide quick, reliable access to cash when you need it most. Investing it puts it at risk, and depending on timing, it’s value could potentially be reduced – by a shift in the share market, for example – right when you need it. Instead, keep your emergency fund in a high-interest savings account.

Basically, those that offer easy access and low risk. High-interest savings accounts and shorter-term deposits are good options. These accounts keep your money accessible and give you some interest earnings while keeping your money safe. Avoid investing your emergency fund in shares or other volatile assets, as you need this money to be readily available.

Without a safety net, you might find yourself relying on credit cards or loans to cover unexpected expenses, leading to debt and financial stress. It can also disrupt your long-term financial goals, like buying a home or saving for retirement. An emergency fund acts as a financial buffer that supports you to manage life’s surprises without derailing your financial stability. 

It’s a good idea to review your emergency fund at least once a year or whenever you experience significant life changes, like a new job, a house move or a change in family size. Regular reviews help ensure your fund remains adequate for your needs. 

Common mistakes include not saving enough, using the fund for non-emergencies, and not replenishing it after use. Some people also invest their emergency fund in risky assets, which can jeopardise its availability. To steer clear of these pitfalls, set a clear savings goal, keep your fund in a safe, accessible account, and use it only for true emergencies. 

Start by setting a clear goal and automating your contributions. Once you have a basic emergency fund of $1000 in place, you can balance your contributions with saving for other goals. Consider allocating a portion of your income to each goal based on your priorities, and remember, having an emergency fund actually helps protect all your other financial goals.

It’s tricky, but important to do both. Start by building a small emergency fund of $1000 to cover minor emergencies. Then, focus on paying down high-interest debt while continuing to contribute to your emergency fund. Once your debt is more manageable, increase your emergency savings. This approach helps you stay prepared while reducing money worry.

Setting clear goals and tracking your progress can help. Break your savings goal into smaller, achievable milestones and celebrate each success. Pay yourself first, and automate your savings to make it easier and more consistent. Remind yourself of the peace of mind and financial security that comes with having a safety net in place. 

Consider using a low-interest credit card or a personal loan as a temporary solution. Look for ways to cut back on non-essential expenses and redirect that money to cover the emergency. You want to start building your fund as soon as possible to avoid relying on debt in the future.

Before dipping into your fund, ask yourself if the expense is truly necessary and urgent. It’s for unexpected, urgent expenses that you can’t plan for, like medical bills, car repairs or job loss. Avoid using it for non-emergencies or planned expenses. Having clear criteria for using your emergency fund helps ensure it’s available when you need it most.

On the other hand, give yourself permission to spend your emergency fund when needed. It can be challenging to let go of it when you worked so hard to build it up, but that’s what it’s for, so don’t make yourself miserable if you use it. A good savings habit will build it back in time, and at least you didn’t need to run up expensive debt to cover the cost.

There are so many. Keeping an emergency fund at the ready gives you:

• Peace of mind

• Financial resilience

• Support for your whānau

• Flexibility

• Freedom from high-interest debt

• Protection for your long-term goals

• A cushion for job loss

• A chance to recover from medical crises

• Timely car and home repairs

• Good money habits!