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Emergency fund: how much you need to save

An emergency fund is a great way to cover those unexpected costs that crop up because life can be unexpected.

You might lose your job, your car might need repairs or you might get hit with a big dental or medical bill. But despite the best of intentions 1 in 5 Australians say they don’t have any emergency savings to fall back on at all.

So how do you build an emergency fund - and how much should you aim to save? In a perfect world experts say that you should have 6 months salary stashed away, but if this just isn’t realistic for you - then set something that is - after all something is better than nothing.

Video transcript

KATE BROWNE: An emergency fund is a great way to cover those unexpected costs that crop up, because, well, life can be unexpected, especially these days. You might lose your job, your car might need repairs, or you might get hit with a big dental or medical bill. But despite the best of intentions, one in five Australians say they don't have any emergency savings at all. So how do you build an emergency fund, and how much should you aim to save?

Well, in a perfect world, experts say you should have six month's salary stashed away. But if this isn't realistic for you, then said something that is. After all, something is going to be better than nothing. Having a goal amount will help keep you on track and keep you motivated as you get to watch it grow.

So how do you find the extra cash to stash away in the first place? This is never easy, but looking at what's coming in and what's going out is a really good start. Look at your essential costs, like rent, loan repayments, power bills, and groceries. And then look at those extras that aren't quite as essential, it could be TV subscriptions, food deliveries, or way too many Ubers. Another way to save is to look for a better deal on things like your phone, internet, or insurance.

Once you've made those cuts, it's time to look at setting up an automated payment to send those savings to a separate savings account, away from the rest of your money. This will not only keep your money safe from any impulse buying, but you'll get to watch it grow over time. Look for the highest interest savings account you can find, but be also sure to check on the fees, as well.

Once you've got that money going into your account, keep an eye out for other ways to boost your emergency fund. If you get a tax return or a bonus, you can put all or some of it towards growing the fund, as well. And if you get a pay rise, see if you can automatically transfer the difference between your old pay and the new straight into that savings account, too. The chances are you're not going to miss the extra if you aren't used to having it in the first place.

And finally, don't be too hard on yourself. Even a small regular amount saved each month can make a huge difference, long-term. So just do what you can. Just make sure you do it regularly. And the most important thing to do is to just get started. After all, your future self will thank you.