Piggy bank

Setting up an Emergency Fund

If you don’t know what an emergency fund is, what its purpose is or how they work, never fear, we are here to help!

An emergency fund is an amount of money (of your choosing) that you set aside for a rainy day.

We all know (well, I hope that we would all know) that having an emergency fund is SUPER IMPORTANT. It’s basically a form of financial security. It allows you to be able to cough up for those unexpected (and often pricey) bills that pop up and trust me, THEY DO.

Having an emergency fund also allows you to deal with all of these pesky bills without having to dig into any current savings (you were diligently saving for something else) or getting yourself into some dodgy loan.

If you have had an emergency fund in the past, but it just hasn’t been enough, or you are looking to set up a new one, continue reading and hopefully we can help you out!

Where should I keep my emergency fund?

We recommend setting up a separate bank account dedicated to this. Give it a name such as ‘emergency fund’ (wow, original, I know) so every time you look at the money sitting in that account, you are reminded not to touch it.

How much should I have in my emergency fund?

This is a tough question to be honest as this can depend on so many different factors. These can include how financially sound you are currently, what your ‘free’ money is (money left after necessary spending) and at what stage of life you are.

When we were setting up our emergency fund, we asked ourselves what the worst case scenario could be. What could our biggest emergency expense be? For us, it would be having to buy a new car if one of our current ones crapped it. So, we decided to put enough in our fund to cover the cost of a new car. By new car, I mean a small, cheap and reliable car (not a new Mercedes or anything). In New Zealand, this would cost around $8K.

This may seem like a heck of a lot of money to have in an emergency fund but I’ll tell you what, we have had to do exactly that in the last month. Buy a new car. We didn’t have to take out a loan, didn’t have to borrow money from family or miss out on anything important, all because we were able to pay it outright. It barely made a dent in our finances. HOW SATISFYING IS THAT! It made the whole situation so much less stressful too.

In saying this, it all depends on your own situation. If you have a brand new car, you maybe don’t need so much in your fund. Also, you may only have a few expenses and not need to cover for much.

This means unfortunately I can’t give you an exact answer for this, you will have to figure this out yourself.

Why have an emergency fund when I can just get a loan?

This question makes me cringe every time, because to me the answer is so obvious. WHO WANT’S DEBT? Definitely not me. Plus, you will end up paying WAY more than whatever you are purchasing is actually worth. I will be writing a whole article on this, so keep an eye out :). Plus, loan sharks can be/are SO DODGY.

Another thing is bragging rights. Yeah, you read that right. I can’t even begin to explain to you how satisfying it is to be able to tell people you are debt free. Telling people you just casually purchased a new car is also extremely satisfying. Even if it’s not a flash car, being debt free is such a rare thing these days that people are amazed when you tell them this! I will be writing another article about how to get debt free as well, so once again, keep an eye out! 🙂

How do I find enough money to put in my fund?

All of this information may seem like you should have a whole lot of money lying around to just put into your fund. This however isn’t true. You can create your emergency fund from nothing. The easiest way to do this is to put a little bit of money each time you get paid into the account. Put as much as you can into it. Even if you can only spare $5 per pay, that’s great! It all counts and it’s all less that you have to pay when it comes time to use your fund.

Why have an emergency fund when I have a savings account?

Yet another good question! I have an answer for this one too! Speaking from experience here, having a separate emergency fund to your regular savings account is so, so, so important.

Imagine this, you have spent a whole year saving up for a new laptop and you finally have enough for it. The next day your fridge dies and you have to rush out and buy a new one (and they aren’t cheap). Not only have you had to buy a new fridge, but all that hard work saving up for a laptop is gone. A WHOLE YEAR AND YOU WERE SO CLOSE! This can be so upsetting and frustrating.

Having a separate (savings!) account for emergency situations allows you to keep a good financial balance between things you have to purchase and things you really want to purchase (and have saved forever for). And be smart, make your emergency fund account a savings account, but make sure it’s one you can dip into at any given time.

Also speaking from experience here 🙂


We would love to hear all about your emergency fund experience so leave us a comment or send us a message via the contact form!

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