The importance of having an emergency fund

It’s worth having an emergency fund when life throws an unexpected expense.

Life can throw a whole lot of surprises your way, and often these can lead to unexpected costs, which you may not be prepared for. Having an emergency fund allows you to have a financial safety net, ensuring you are ready for things like car repairs, replacing an essential appliance, or covering unavoidable travel. It is not designed to cover major events, like a house fire; that’s where insurance comes in.

The Retirement Commission says that it provides peace of mind and boosts people’s financial resilience and wellbeing¹. Having emergency savings on hand helps you to avoid costly debt when the unexpected happens.

How much should be in your emergency fund?

There’s no one-size-fits-all answer - it depends on your personal circumstances and how much you can realistically save. The Retirement Commission suggests starting with a goal of $1,000 to begin your emergency savings journey. If you want to prepare for bigger disruptions such as redundancy, business failure or natural disasters, you’ll need to aim to have enough to cover three to six months of expenses.²

For retirees, a larger buffer may be needed. The Retirement Income Interest Group of the New Zealand Society of Actuaries suggests retirees hold one to two years of expenses in an emergency fund, alongside a diversified fund or portfolio used for retirement income drawdowns to supplement Government Super payments.

The reason retirees may need to have a larger emergency fund is that they generally rely on fixed sources of income and no longer have income from employment. This makes them more vulnerable to unexpected expenses, including healthcare costs, which can increase with age.

If an unexpected event forces them to sell long-term assets, such as shares, during a market downturn, they risk locking in losses. This can shorten the potential lifespan of their retirement savings. A cash emergency fund helps mitigate these risks. It can reduce the need to sell investments at unfavourable times and supports financial resilience throughout retirement.

Where should your emergency savings be invested?

Emergency savings should be kept separate from your everyday spending account. For most people, it makes sense to hold these funds in lower-risk investments rather than in volatile assets like shares. Accessibility is equally important. If an emergency happens, you need to be able to access your funds.

Suitable options for holding emergency savings may include bank savings accounts, shorter-term deposits or cash funds. We offer two cash funds, the Smart NZ Cash ETF and the SuperLife NZ Cash Fund, which are profiled in the table below.

Building and maintaining an emergency fund won’t prevent life’s surprises, but it can make them far less stressful.

You don’t need a lump sum to begin; even small, regular contributions can steadily build the safety net you’ll be glad to have when the unexpected happens.

Footnotes

1. Te Ara Ahunga Ora Retirement Commission. Money Month. Sorted Money Month | Te Ara Ahunga Ora Retirement Commission

2. Sorted. How to build up your emergency savings to cover unexpected costs » Sorted

3. Retirement Income Interest Group of the New Zealand Society of Actuaries (August 2023). Drawdown Rules of Thumb: Update 2023. RIIG-RoT-Update-2023-FINAL-August-23.pdf. This is background information supporting the Sorted Retirement Navigator which was launched in June 2025 by Te Ara Ahunga Ora Retirement Commission. It is free to use on sorted.org.nz. This tool helps those nearing, or already in, retirement, work out how to turn a saved lump sum into a steady income to live on. The Commission partnered with the Retirement Income Interest Group (RIIG) of the New Zealand Society of Actuaries (NZSA) to create the tool. See more information on the tool here: Retirement spending rules: 4 expert approaches to make your money last » Sorted.

4. You can buy and sell units in most of our ETFs through Sharesies or InvestNow, as well as via any trading platform offering stocks on the NZX.

Disclaimer

This information is issued by Smartshares Limited (Smart), a wholly owned subsidiary of NZX Limited. Smart is the issuer and manager of the Smart Exchange Traded Funds. The product disclosure statements are available at smartinvest.co.nz.

Past performance is not a reliable guide to future performance. The calculations and returns used in this article are illustrative and intended as a guide only, and are not an indicator of future returns. The value of investments can go down as well as up and investors may not get back the full amount invested nor any particular rate of return referred to in this article. Returns are not guaranteed.

This information is intended to provide a general guide and is based upon, and derived from sources Smart considers reliable. Neither Smart nor NZX Limited, or their respective directors and employees accept any liability for any errors, omissions, negligent misstatements, or for the results of any actions taken, or not taken in reliance on this information.

This information is not a substitute for professional advice. In preparing this information Smart did not take into account the investment objectives, financial situation or particular needs of any particular person. Accordingly, before making any investment decision, Smart recommends seeking professional assistance from a licensed Financial Advice Provider.