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Introduction
The focus of the Retirement Commission’s Sorted Money Month in August 2025 is on the importance of having emergency savings. This article is the first in a series of three articles on emergency savings. The topic we are covering are:
- Why having an emergency savings account is essential,
- How to set up an emergency savings account and how much is enough, and
- How to maintain your emergency savings account.
Why is this such an important topic to consider?
You do need an emergency savings account. It is a primary element of a basic financial plan. Having money set aside and always available for the unexpected expenses that will surely come eliminates a lot of stress. It also eliminates the need to rely on credit cards, a bank overdraft or after-pay type loans.
If you don’t have an emergency savings account there will be times when unexpected bills come that you don’t have the money to pay. While most businesses offer after-pay solutions, they always come with a cost. There’s usually set-up costs and interest to pay. That makes it harder to put money away for the next unexpected bill.
Banks do allow you to go into overdraft. That means that if you get to the supermarket checkout and there isn’t sufficient money in your account, the bank will still allow your payment to go through. Budget coaches advise that once people go into overdraft on their account, many people struggle to get their bank account back into a positive balance.
If you don’t have any savings and your mechanic doesn’t allow you to set up a payment plan, it may mean your car is off the road until the bill is paid.
What is the emergency savings account for?
An emergency savings account is a source of money to draw on during unexpected circumstances. It is basically an insurance fund for sudden setbacks: a redundancy, the loss of income, car bills, dental bill or prescription glasses, home repairs, a natural disaster, an unforeseen tax bill, a death in the family, or emergency travel expenses.
Giving gifts, holidays, or predictable expenses are not emergencies so you shouldn’t use your emergency savings account for these purchases. A spending plan (budget) is helpful for planning for these regular large expenses, like your rates bill, large electricity bills in winter or your annual holiday.
It’s important to remember that saving is about delaying your spending, rather than not spending at all. If we have savings when we make a purchase or need to pay a bill, we will have the money to pay for it without going into debt.
An important economic principle to remember is that people who save have more money to spend on what they want than people who don’t save. That’s because saving accounts pay you interest as your money accumulates.
Remember, all debt has a cost. It’s not just the fees you pay to set up the loan and the interest you pay. It’s also the loss of freedom you experience. In the Bible, the writer of the book of Proverbs advises: Just as the rich rule the poor, so the borrower is servant to the lender. Proverbs 22:7. If you get behind on paying for items you have bought on credit, you risk having them repossessed and still having debt to pay.
Debt calculators are a great tool for working out what your debt is costing you. In the same way, savings calculators show you how quickly your savings account will grow as the interest the bank pays you gradually increases. Sorted.org.nz and Crown Financial Ministries both have a range of online calculators and tools you can use. They also have online tools for setting up a spending plan.
Other articles and courses that are useful are:
Debt Free Living online course
Do Well 10 Week Small Group Biblical Financial Study
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