Why you need a 'life happens' fund
Written and accurate as at: Oct 12, 2025 Current Stats & Facts
A well-stocked emergency fund can be absolutely vital when life throws you a curveball. But it does a lot more than help you cover unexpected expenses. Ideally, your emergency fund will be a source of constant security, something that offers financial relief when it’s needed and mental and emotional relief when it’s not.
If your emergency fund isn’t as robust as you’d like, or you’re not entirely convinced you need one in the first place, here are just a few things to help motivate you.
It provides peace of mind
Having a cash reserve that’s separate from the rest of your savings and only accessible in times of need can do wonders for your peace of mind. Emergencies can be both stressful and time consuming, but with a safety net in place you can at least keep the financial fallout to a minimum.
For an emergency fund to be effective, however, you'll need to be disciplined. That means only tapping into it to cover costs that are some combination of urgent, unplanned and essential.
Job loss and surprise medical bills obviously fit the bill, but there might be less pressing situations where you’ll have to make a judgement call.
That might include not-so-critical home repairs (like fixing your air conditioning before summer comes around) or opting for a medical procedure that, while not an emergency today, could prevent bigger issues down the track.
It can spare you from relying on debt
Not all debt is bad. Some debts (the obvious examples being a mortgage and HECS-HELP debt) can be necessary stepping stones to greater financial security.
But other forms of debt can be problematic, and in an unfortunate twist, it’s often the ones that are easiest to get into that are the hardest to escape.
Credit cards, payday loans and other forms of high interest debt can provide immediate relief in times of need, but they can just as easily hurt your long-term savings prospects. And if you’re not careful, you might find yourself trapped in a cycle of debt.
That’s where an emergency fund can make all the difference. Having savings to fall back on means you can cover urgent costs without racking up interest charges, being beholden to shady lenders, or putting your credit score at risk.
And if buying a home is in the cards for you, you’ll have an easier time impressing the bank when your credit report isn’t littered with eyebrow-raising loans.
It can help keep your plans on track
Lastly, having an emergency fund means the occasional setback (whether that’s job loss, car troubles, or something else) is less likely to derail your long-term goals.
Say you’ve been diligently putting away money in shares over the years. If you suddenly need money to get out of a bind, you hopefully won’t have to part with those shares and any returns they might generate in the future.
An emergency fund can also allow you to take the kinds of risks that can be beneficial in the long-run, like changing careers or taking a job at a promising startup. If things don’t work out right away, you’ll have confidence that you can stay afloat while you recalibrate.
How to build up your emergency fund
If you’re hoping to build an emergency fund but not sure where to start, here are some pointers:
- Work out how much you spend each month, and then try to save 3-6 times that amount
- Think about setting up automatic transfers to make reaching that goal easier
- Keep your emergency fund in a separate account so it doesn’t mix with your regular savings
- Avoid keeping your emergency savings in shares, as these can fluctuate wildly
- Avoid dipping into your emergency funds unless it’s absolutely necessary.
The sooner you can put these steps into action, the more prepared you’ll be for life’s twists and turns.