Building an emergency fund is one of the most empowering financial decisions you can make. It’s your safety net, your peace of mind, and your buffer against life’s unexpected moments. If you’ve heard conflicting advice about how much to save, you’re not alone. Let’s take a few minutes to explore what makes sense for your situation.
The traditional 3-6 month guideline
You’ve likely encountered the standard advice: save three to six months’ worth of essential expenses. This range exists because everyone’s circumstances differ, and that’s actually helpful. Three months might cover your rent, groceries, utilities, insurance, and minimum debt payments during a job transition. Six months provides extra breathing room if you work in a volatile industry or have dependents relying on your income.
The key word here is essential expenses, not your entire income. Your emergency fund doesn’t need to maintain your current lifestyle; it needs to cover necessities while you navigate challenging times.
Personalising your target
Several factors should influence where you land on this spectrum. If you’re a sole income earner, work in a specialised field where new roles take longer to secure, or are self-employed, leaning toward six months (or even more) makes sense. Contractors and gig workers can benefit from larger buffers, given their income variability.
Conversely, if you’re in a dual-income household where both partners have stable employment, have minimal fixed expenses, or possess highly sought-after skills, three months might suffice. Those with reliable family support networks or multiple income streams can also feel confident with smaller reserves.
Health considerations matter too. If you have ongoing medical needs or dependents with special requirements, building a more substantial fund protects you from having to choose between health and finances.
The best home for your emergency fund
Your emergency savings should be immediately accessible but separate from your everyday accounts. Out of sight helps prevent temptation. High-interest savings accounts may be ideal, offering both liquidity and competitive returns that help your money keep pace with inflation. Many Australian banks offer bonus interest rates when you meet monthly deposit conditions, making your emergency fund work harder.
Avoid investing emergency funds in shares or property. When emergencies strike, markets might be down, forcing you to sell at a loss exactly when you need that money most. In addition, there may be a delay in selling the shares or the property, limiting your access to capital.
Remember, building your emergency fund is a progressive journey. Start with $1,000, then aim for one month, two, then three. Each milestone deserves celebration, as you’re building genuine financial resilience.
The information contained in this article is general information only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision in respect to a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.
