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Building an Emergency Fund in Australia

20 May 2024
5 min read

Why you need 3-6 months of expenses saved, and the best high-interest savings accounts to grow your emergency fund.


Why You Need an Emergency Fund

An emergency fund is money set aside for unexpected expenses or income loss. It's your financial safety net that prevents you from going into debt when life throws curveballs.

How Much Should You Save?

Most financial experts recommend 3-6 months of essential expenses:

  • 3 months - If you have a stable job, dual income, or strong job market

  • 6 months - If you're self-employed, single income, or work in an unstable industry

    • What Counts as Essential Expenses?

    Calculate your monthly essentials:

  • Rent/mortgage

  • Utilities

  • Groceries

  • Insurance

  • Transport

  • Minimum debt repayments

  • Childcare

    • Where to Keep Your Emergency Fund

    Your emergency fund should be:

  • Accessible - You can withdraw within 24-48 hours

  • Separate - Not mixed with everyday spending money

  • High interest - Earning returns while sitting idle

    • Best options in Australia:

  • High-interest savings accounts (4-5%+ currently)

  • Offset accounts (if you have a mortgage)

  • Term deposits (for a portion you're less likely to need)

    • How to Build Your Emergency Fund

  • Set a target - Calculate 3 months of expenses

  • Automate savings - Set up automatic transfers on payday

  • Start small - Even $50/week adds up to $2,600/year

  • Use windfalls - Tax returns, bonuses, and gifts go straight to the fund

  • Cut one expense - Cancel unused subscriptions and redirect the savings