How much should I have in my emergency savings fund?


Your emergency savings fund is the cash you've set aside in case of—you guessed it—an emergency

Some people call it a rainy day fund, others call it a sleep-better-at-night-account, regardless of what you name it we all need to be saving towards it.

Jump Ahead

At Sapience, we believe having emergency savings is a key part of our client's financial wellness as is learning to budget.

Unfortunately, 43% of Australians describe themselves as not saving and don't have enough in an emergency fund to cover minor emergencies. For many families, this lack of emergency savings results in reliance upon high-interest loans and high-interest credit cards.

The government regulator ASIC through its SmartMoney website recommends having enough money saved to cover between one to three months of expenses.

  • For example, if your mortgage repayments, grocery bills, utility cost, insurance premiums, and all other expenses add up to $4,000 a month, this means you should aim to have between $4,000 and $12,000 in your emergency savings account.

Dual-income families, people with dependents, or individuals with variable or commission-based income might want to think more in terms of having at least six months of living expenses stored in their emergency savings. Obviously, the longer you’re able to cover your cost of living the better off you’ll be on your rainy day.

Johns story

I’m glad I saved for a rainy day – because it poured.
As a single Dad, I’m responsible for the rent and for my daughter who’s in high school. One day I get a call she’d fallen down stairs and suffered a head injury. Thankfully her injuries were manageable but she had to wear a halo traction brace while she recovered and wasn’t allowed to be unsupervised at home for the first few weeks. I had no annual leave and was forced to take time off work to care for her.

Our emergency savings fund took a hit, but we survived, managed to pay the rent, the rehabilitation costs and she’s back at school and I’m back at work. We all recovered.

Where to stash your emergency cash?

Ideally, you’re keeping this cash in a separate savings account so you can have a mental and practical separation between emergency money and your other savings, so you don’t accidentally spend it on ‘stuff’.

Offset accounts can be useful

For people with a mortgage, your mortgage offset account is an effective way to make use of emergency savings while you pay down your mortgage. (What you don’t’ have a mortgage offset account? – Contact us and we’ll help sort that for you)

  • If you find the temptation of easy availability to your emergency buffer funds too much a temptation, consider making a one-off repayment to your mortgage account if it allows for any additional repayments to be redrawn when needed.

If you don’t have an emergency savings buffer in place already, some people consider borrowing an additional 3 to 6 months of repayments and leaving them in the mortgage as an unused buffer amount until you get your emergency savings up to where you need them to be.

A 2015 report* found Millennials (those aged 20 to 34) are Australia's best savers – putting aside an average of $500 per month compared with $400 for Generation X and $300 for our Baby Boomers.

What are emergency savings for again?

This money is specifically for emergency situations, like a medical emergency, a death in the family, or to cover your living expenses should you get sick or injured and cannot work.

How Income Protection insurance works with your emergency savings

Most income protection insurance policies are set up with a waiting period that’s typically 30 days or more. Any claim payment is usually paid 30 days after the end of the claim waiting period. For most people, this means 60 days of no benefit payments until your income protection policy kicks in. Your emergency savings plan needs to be able to get you through those lean days.

How Crisis Insurance works with your emergency savings

A crisis insurance policy can pay an agreed amount of money upon the diagnosis of one of a list of major medical crisis events. These can be for events like heart attacks, major head traumas and even diagnoses like prostate cancer and leukaemia.

A crisis insurance policy can help cushion the impact of a major medical issue that can affect 1 in 3 Australia families over the course of their life. This cash injection of recovery money can be used as needed and often means that a families emergency savings funds are left unused. If you want to know more about this contact us for a chat.

How Life Insurance works with your emergency savings

Some higher quality life insurance policies pay an advancement benefit of around $15,000 (usually within 24 hours) upon the presentation of a death certificate. This early payment from the proceeds of a life insurance policy is able to help with immediate end of life cost and is an important feature that you should chat with your financial adviser about. 

  • This information should ideally be referenced in your estate planning documents so that if this situation occurs unexpectedly, your executor has all the necessary information and contact details of your financial adviser safely at hand.


Drew Browne

Drew specialises in helping people protect and provide for what matters most in their lives. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His company Sapience Financial and Investment Services is committed to using business solutions for good in the community, and in 2015 certified as a B Corp. In 2017 Drew was recognised in the inaugural Australian Westpac Businesses of Tomorrow national awards. Drew writes for successful Small Business Owners and Entrepreneurs at Smallville, his blogs can be read on and you can connect with him on LinkedIn.

Any advice provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

drew browne pic

Drew Browne

Sapience Founder & Director.
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