Could you cope if an unexpected bill landed in your email inbox tomorrow?

Data shows that many New Zealanders are living payday to payday, and would struggle to cope with an out-of-the-ordinary expense.

Research from Consumer NZ found that 15% of New Zealanders surveyed had no savings at all and another quarter were concerned about how much they had.

If you’re one of them, now can be an excellent time to start building an emergency fund.

What’s an emergency fund, anyway?

In broad terms, an emergency fund is money put aside for unexpected expenses.

Maybe your car needs some repairs, or you’re off work for a month or two and need something to help you through financially.

Your emergency account is there in the background, ready to step up when it’s needed.

How much should it contain?

Opinions vary but it is usually sensible to aim for an amount that’s equivalent to three months’ income. Some people suggest six. But if this sounds like a lot, don’t be disheartened: start putting aside what you can and the amount will grow over time.

To work out how much you might need, think about things like:

• How much space is there in your weekly budget to cover extra expenses? Would you struggle to pay an extra $200 or do things only get tricky when it’s an extra $1,000?
• Could you manage if you lost your ability to earn an income for a while? Some two-income households can get by on one for a period of time, but others might find it challenging. If you’re a single-income household to begin with, that’s something to consider in your planning.
• What bills do you have going out each week or month that cannot be altered? While we can pull back on things like food and petrol from time to time, it can be harder to reduce spending when it comes to the mortgage or rent.
• Is your car likely to need significant maintenance in the near future?
• Are you likely to need to fund house repairs? Are there likely to be expenses for your kids in the future?

Aren’t times a bit tight to be talking about more saving?

The cost of living has increased significantly for a lot of people in recent years. But that doesn’t mean saving can go on the backburner. In fact, it’s even more important that you do what you can to create a buffer.

When your budget it tight, it makes it even more important to have money available for emergencies. If you’re worried about finding the money to get started, you may be able to think outside the box.

Some people find it helpful to kickstart their accounts by raising money through selling something they no longer need.

Emergency funds are important, but not the complete answer

While research shows that people with an emergency fund generally feel a lot more positive about their financial situations, it’s not the full answer. If you’re facing a really big health expense, for example, or you’re off work for a significant amount of time due to illness, you may not have enough set aside. In this case, it can be helpful to consider having in place insurance that could help out in tandem with your emergency savings.

Like to talk?

If you’re thinking about how to build up an emergency fund, or how it might fit into your overall financial wellness, get in touch with us. We can also talk about other strategies to boost your wealth and resilience so that you can keep going for your goals, no matter what.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.