Why it comes first
Without savings, a $1,500 car repair goes on a credit card at around 20% interest, and one surprise can turn into months of debt. An emergency fund breaks that cycle, and gives you breathing space if you lose your job.
Other safety nets are thinner than people expect:
- JobSeeker Payment may not start straight away, and if you have savings above a set amount, you may have to wait longer under the liquid assets waiting period.
- Your super can only be released early in narrow cases, such as severe financial hardship, and isn’t meant for emergencies.
- Sick leave and redundancy pay depend on your job: casuals usually get neither.
How much do you need?
Add up your essential monthly costs only: rent or mortgage, groceries, energy, transport (including rego and insurance), and minimum debt payments. Then multiply:
| Your situation | Aim for |
|---|---|
| Steady job, no dependants | 3 months |
| Family, single income or a less secure job | 6 months |
| Self-employed, casual or income that varies | 6 to 12 months |
Example: essentials of $3,000 a month mean a fund of $9,000 to $18,000.
Where to keep it
- A high-interest savings account that’s easy to get at. Many bonus-rate accounts only pay the top rate if you add money and make no withdrawals each month, so you’d earn the low base rate in a month you use the fund. Look for conditions you can always meet.
- Or an offset account linked to your home loan: the money saves you interest at your loan rate, the saving isn’t taxed, and you can use it any time.
- Separate from your everyday account, so it doesn’t get spent by accident.
- Not in shares, and not all in a term deposit. Markets can fall just when you need the money, and a term deposit usually needs 31 days’ notice to break.
- Savings account at 4.5% $919 of interest, taxed at 32%
- $625
- Offset account, home loan at 6.2% Interest you don’t pay on your loan, with no tax
- $1,276
The offset leaves you $651 better off over the year
An offset account only helps if you have a home loan. Rates change often: compare your own savings rate with your loan rate after tax.
Redraw also cuts your interest, but it’s different from an offset: you’re taking back extra repayments, and the lender can limit or stop redraw. An offset is the safer home for an emergency fund.
Either way, the Financial Claims Scheme guarantees deposits up to $250,000 per person, per bank, building society or credit union.
How to build it from nothing
- Start with a small goal, such as $1,000 or one month of essentials.
- Automate a transfer on payday, even $25 or $50 a fortnight.
- Add windfalls: part of a tax refund, bonus or pay rise.
- Once you have a starter fund, clear expensive debt, then build the rest.
When to use it
Use it for real emergencies: losing your job, urgent repairs, medical or vet bills. Not for holidays or Christmas: save for those separately. When you use it, top it back up before going back to other goals.
The budget calculator helps you find room to save each pay.