The importance of saving 3 months of living expenses
Saving for a rainy day is a common piece of financial advice, but that doesn’t make it easy. In fact, more than 50%* of Kiwis don’t have 3 months of living expenses saved. Let’s look at some ideas to help you get started.
Posted October 2023
If you’re someone who is always busy, working hard to achieve your goals and improve your life, it’s important to remember to maintain your financial stability. Financial insecurity can take a toll on your mental health and physical wellbeing, and with cost-of-living crisis now is the time to put a plan in place. Ideally, plan to build a safety net equivalent to 3 months’ worth of savings to help protect yourself from unexpected setbacks.
In this article, we’ll look at:
- Calculating your monthly expenses
- The amount you should aim to save for your emergency fund
- Automatic payment set-up tip
- The value of trimming expenses
- Opening a separate savings account
- Consistency is key
Did you know a significant portion of Kiwis are not adequately prepared for unexpected financial challenges? According to Consumer Insight Research conducted by Unity in July 2021, a staggering 51% of New Zealanders have less than 3 months' worth of living expenses saved. This statistic highlights a real need for improving financial preparedness and underscores the urgency of building a financial safety net.
Why 3 months? It's a general rule that many financial experts recommend. Having 3 months of living expenses saved can help you tackle financial challenges, such as rising cost of living, job loss, medical emergencies, or car repairs, without going into debt and requiring a debt consolidation loan or dipping into your KiwiSaver.
So, how do you go about saving 3 months of living expenses? Here are some steps to get you started:
Start by creating a realistic budget and tracking your expenses for a month or two. This will give you a clear idea of how much you spend on fixed expenses like rent, utilities, food, transportation, and healthcare, as well as discretionary expenses like entertainment and travel. Download the free Unity budget tool to get you started..
Once you know your monthly expenses, multiply that number by 3. This is the amount you should aim to save in your emergency fund. For example, if your monthly expenses are $3,000, you should aim to save $9,000.
A simple trick to save consistently is to make it automatic. Set up an automatic payment or a regular transfer on the day you get paid straight into your emergency fund. Start with a small amount, such as $20 each pay day, and gradually increase it as you get more comfortable.
Look for ways to trim your expenses and free up more money for saving. This could include negotiating bills, cutting back on subscriptions, or finding cheaper alternatives for things you regularly spend on. Every little bit counts. The team at MoneyHub has some great ideas to get you started.
Once you've started saving, set up a separate emergency fund account. And remember earning interest on any savings you have will help your savings grow faster. Start by checking out the interest you can earn on Unity savings accounts.
Building an emergency fund is not a one-time task, but an ongoing habit.
Making it a priority to save consistently and protect yourself from unexpected financial costs can give you the peace of mind and flexibility you need to stress less. With the statistic showing that 51% of Kiwis are currently not adequately prepared, there's a clear need to improve our financial preparedness. By following these simple steps, you can take control of your financial future and protect yourself from unexpected challenges. Start building your financial safety net today!
Next, Unity answers common questions to help you keep on track with your savings.
How do you save and live your life at the same time? Am I better to save with cash or a savings account? How does Kiwisaver work? Check out our helpful video below.
Have more questions?
You may find the answer on one of the links below:
- Think before you spend tips
- Consider consolidating your debt
- How to financially prepare yourself for a recession
- Tackling debt one step at a time
- Follow Unity on Social media for tips and ideas
*Perceptive research 2021