What's your money emergency plan?

No matter how prepared you are and how much you plan, sometimes, life just happens. The car breaks down, a cyclone rips your roof off, and someone loses their job - unexpected expenses are expected. You just don’t know when they might hit.

That’s why lots of people choose to have a rainy day fund. They squirrel away a chunk of change that they can draw on when the expected unexpectedness shows up. It means they don’t have to dip into their long-term savings, or add debt to their credit card, or take out a new loan, to cover the expenses.

It’s pretty much our number 1 tip to help reduce money stress. In fact, making sure you have at least $1,000 tucked away somewhere is Sorted.org.nz’s first step in getting your money sorted.

Unfortunately, a lot of New Zealanders don’t have an emergency fund. In 2020, a study revealed that 1.4 million Kiwis don’t have a rainy day fund to fall back on when times are tough. About 20% of us would only be able to cover living expenses for a week if we lost our jobs, and 15% would last even less.

That’s not an ideal situation, but thankfully, building an emergency fund is simple (though not always easy). You can give yourself peace of mind and give yourself room to breathe with an emergency fund with just a few simple steps.

1. Decide how much to save. Sorted suggests starting at $1,000 saved up if you’re going from zero. We think so too! Then you can work your way up. 3 months worth of expenses is a good long-term goal.
2. Decide where to keep your emergency fund. An emergency fund should be easy to get in… well, emergencies. Physical cash can work, but it might be safer to keep it in a dedicated savings account. Plus, since you’re not touching this money unless you really need to, you can put it in a Bonus Saver account and turn your emergency fund into a money generator!
3. Figure out your regular savings. Saving an emergency fund is easier if you put in a  small amount regularly, rather than trying to do it all at once. Figure out how much you can afford to save a week, even if it’s only a small amount, and set up an automatic weekly transfer from your bank account to your savings account. That way, you never have to even think about it. It just happens.

Just like having an emergency plan for natural disasters, emergency funds make sure that you and your family are protected when the unexpected happens. It avoids making more debt and relieves you of unnecessary stress about “the next problem around the corner”. 

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This was originally posted as an education article on the Money Sweetspot customer portal. If you read this as one of our customers, you would've earned some money off your loan! Do the mahi, get the treats. Find out more.

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