Why you need an emergency fund

What is an emergency fund?

An emergency fund, or rainy day fund, is a way to save emergency money to help you cover the cost of unplanned expenses. This could include losing your job, a medical emergency or your car breaking down.

Having an emergency fund means you’ll be financially prepared for an emergency without needing to borrow money or use a credit card. It means you can pay to get your broken-down car back on the road, or cover your everyday expenses while you look for a new job, without the risk of getting into debt.

How much should I have in my emergency savings?

The general rule for an emergency fund is to aim to save two to three months’ worth of living expenses – enough to keep you going if you find yourself unable to work for a few months. However, this isn’t a hard and fast rule. You should consider your own circumstances, including how much emergency money you’re able to save and how much of a financial buffer you need to feel comfortable.

How to build an emergency fund

Set a savings goal

To set a savings goal, work out what your living expenses are each month and then multiply that by the number of months you want your emergency fund to cover. When working out your living expenses, make sure to include:

• rent or home loan repayments
• groceries
• transport costs, like petrol or public transport fares
• loan and credit card repayments
• bills like electricity, gas, internet and phone.

You can use our budget planner to create a monthly budget. If you’re not sure exactly where your money’s going each month, you can track your spending in the NAB app.

You can also use the NAB app to set and track your savings goal.

Open an account and start saving

Your emergency fund should be for emergencies only. Ideally, you want it to be separate from your other accounts, so you’re not tempted to dip into it.

Consider opening a separate savings account just for your emergency fund. Look for an account with a good interest rate so you can earn a bit extra each month on your savings.

Explore our NAB Reward Saver and NAB iSaver accounts, and learn how to open an account online.

Automate your savings

Now that you’ve set up an account, it’s time to start making regular deposits. Consider setting up a regular payment so money is automatically transferred to your savings account every time you get paid.

Maximise your offset account

If you have a home loan, consider using an offset account as your emergency fund. That way the money in your emergency savings will also lower the amount of interest you pay on your home loan, while still allowing you to access the money quickly if you need it.

Learn more about how offset accounts work.

Continuously contribute to your emergency fund

Whenever you find yourself with some extra cash, like a tax refund, consider using it to boost your emergency savings.

Use your emergency fund for emergencies only

Remember, your emergency fund should only be used in an actual emergency. It might be worth setting some rules for yourself around what counts as an emergency to you.

If you think you’ll be tempted to use it for non-emergencies, consider making the money a little harder to access. One option is to hide your emergency fund from view in online banking. This way you won’t see the balance when you log in and you’ll be less tempted to spend the money. Learn how to hide an account in NAB Internet Banking.