Emergency fund
Money set aside in accessible form to cover unexpected costs without resorting to debt.
An emergency fund exists to absorb shocks — a job loss, a medical expense, a car failure — without forcing you onto a credit card or into selling investments at a bad time.
Three to six months of essential expenses is a common target, with the higher end suiting people on variable income or in less secure employment.
For homeowners, an offset account is often the best home for it. The money stays instantly accessible while reducing mortgage interest, producing an effectively tax-free return.
Build it before you invest anything outside super. Without a buffer, the first unexpected expense forces you either onto high-interest debt or into selling investments at whatever price the market happens to be offering that week.
Sizing the fund
If essential monthly costs are $4,200, three months is $12,600 and six is $25,200. It is essential spending that matters, not your entire lifestyle budget.
The bit people get wrong
An emergency fund invested in shares is not an emergency fund. Emergencies cluster with downturns, so you would be selling at the worst possible moment.
Common questions
Where should I keep it?
A high-interest savings account or a mortgage offset. The requirements are immediate access and no risk of capital loss.
Should I build one before paying off debt?
A small starter buffer first prevents new debt when something breaks. Then attack high-interest debt before completing the full fund.
Does an offset count?
Yes, and it is usually the most efficient option for a homeowner, provided you have the discipline not to treat it as spending money.