• Shaun O'Keefe I Financial Adviser

How much savings should you have in your emergency fund?

Too many people don't have emergency savings to help see them through life’s hiccups. So when the unexpected arrives, and it always does, they find themselves under financial pressure. This pressure leads to stress. Stress leads to making bad money choices – such as maxing out credit cards or taking on short-term, expensive micro-loans. And so begins the cycle of falling behind on bills and other regular payments. Been there – done that. Wasn’t fun.

The Household Financial Comfort Report, published by ME Bank in August 2021, found:

21% of Aussie households had less than $1,000 in cash savings. 24% of households reported that if they lost their income, they’d only be able to keep up their current lifestyle for about a month. And just a tiny 11% would only have enough to survive for two short weeks!

This is truly living life on the financial edge. And hoping nothing’s going to come along and push you off. So let's put on your savings parachute.

How much should you put aside

As a financial adviser, I recommend my clients have emergency savings ready for those unexpected events in life. It’s not just sensible – but it’s great for your headspace and takes away a little bit of that financial anxiety. But how do you go about doing it - and just how much cash should you set aside?

Here’s how to think it through:

  • Work out how much money you have right now now. I’m talking about your real money that you can access today – not credit card money. This is your current emergency savings and a good place to start.

  • Now, work out what income you can expect to earn over the next twelve months. This is how much pay you get in your hand each week/fortnight - then multiply it over 12 months.

  • Work out what your expenses are likely to be over the next 12 months – things like mortgage/rent, groceries, bills, mobile and some fun money. Hopefully this is less than what you earn. If not, you need to cut back.

  • Then decide how long you want to be able to survive financially if your income stopped today. What buffer will make you feel financially confident? Multiply the number of months by your monthly living costs. That’s now your target. And If you’ve already got some savings - then you’re well on your way.

Most experts suggest you should have around 3 - 6 months of living expenses set aside. This is your base cost of living – no fancy stuff. You want to be comfortable enough so you're not anxious - but still motivated to get income coming back through the door to get back on track.

Just how much you want set aside will depend on your circumstances and what you think you’ll need to keep money stress down.

How can you do it

The best way to achieve this is to break it down into smaller, achievable goals. Try for an initial goal of $1,000. To get there you might try the following:

  • Save $50 a week for around 5 months out of your current income. Force it into your savings as soon as you get paid - then forget about it. You'd be surprised at how good this sneaky little tactic works.

  • Stop spending on takeaway coffees each day and set those savings aside.

  • You might even sell some of your unused stuff on Marketplace. Just check out your garage, your cupboards and under your bed. If you haven't used that stuff in 12 months it should go - and you should pocket the cash.

  • Use your tax refund as a fast track to your savings goal. Obvious one but still a good go-to.

  • Take on a temporary part-time job, work extra hours in your current job or start a side-hustle for a few hours each week. Then put this money into your emergency fund.

Whatever way you go, once you’ve achieved your first $1,000 - focus on your second. Believe me, when you get some runs on the board you’ll start getting laser focussed and highly motivated. Keep going until you reach your goal.

Where should you keep these savings

The next step is to decide where you should keep your savings. I reckon it’s wise to keep your emergency savings separate from your day-to-day money - but still within easy reach.

If you have a home loan, you might consider putting them in a mortgage-linked offset account. This will work to reduce the interest cost of your overall mortgage.

Another option is to establish a ‘micro’ savings account. The rules on these vary, but most are based on rounding up every purchase made on a debit card and setting these ‘cents’ aside in a free savings account. Every little bit counts.

Building up your emergency savings will give you a better understanding of your money. And when times are tough or unexpected bills pop up, you'll have the confidence to face them front on and come out stronger.


Shaun O'Keefe thinks that families are important. He's found that he can help more people, more effectively when he helps families. As a fee-based financial planner, he works with families just like yours to bring personal values and financial resources in line so that you can keep focussed on the priorities in your life.

The information contained in this article is general in nature only. It is not intended to be a recommendation, offer, advice or invitation to purchase, sell or otherwise deal in securities or other investments. Before making any decision concerning a financial product, you should seek advice from an appropriately qualified professional. We believe that the information contained in this document is accurate. However, we are not specifically licensed to provide tax or legal advice and any information that may relate to you should be confirmed with your tax or legal adviser.


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