Sydney woman Emily Barnes has $4,000 in an emergency fund, but new research shows she’s in the minority for her generation. (Source: Supplied/Newswire)
Millions of Gen Z Australians don’t have a “critical” financial buffer in place, new research has found, leaving them vulnerable to the rise of unexpected costs. An emergency fund is money that’s set aside to cover urgent or unexpected expenses, whether that’s car repairs or a medical bill.
Emily Barnes currently has about $4,000 in her emergency fund, which she keeps in a separate high-interest bank account from her everyday spending. But the 26-year-old Sydney worker told Yahoo Finance it wasn’t something she consistently maintained, and she’s had to use her credit card to cover urgent expenses in the past.
“I have an AMEX [credit card], which I use for points, and I tend to just put things on that and then I’ll pay it off every fortnight, rather than having an emergency fund all the time,” she said.
“I only really started building it up when I started my [current] job, which will be two years in April. Before that, I was on a salary, but it was a really shitty salary, so I couldn’t really save much.”
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Barnes receives commissions on top of her regular salary, which she puts towards both her emergency fund and investments.
“It means I can put a lump sum of money away, which really helps me out with the emergency fund and then the ETFs,” she said.
Barnes started investing in ETFs (a basket of stocks known as exchange traded funds) earlier this year to help boost her savings further and has built up a portfolio worth $50,000.
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The 26-year-old said her emergency fund helped provide a ‘safety net’ should unexpected costs crop up. (Source: Supplied/Getty)
It comes as new research commissioned by ING found only 19 per cent, or about one in five, of Gen Z Aussies have a three-month emergency fund.
The average amount stashed away for those surveyed was $16,475. But the majority of Gen Z respondents revealed they had less than $10,000 in total savings.
An emergency fund is money you save to cover urgent or unexpected expenses. It gives you a financial safety net so you don’t have to borrow money or take out debt, like a credit card, which may leave you in a worse-off position if interest payment start to accrue.
Mintwell financial adviser Josef Jindra said it was “absolutely critical” to have an emergency fund in place and it helped create a “buffer” for unexpected expenses that life can throw at you, whether that’s fixing a cracked tooth, a punctured tyre or an unexpected job loss.
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“Emergency funds are critical for any person at any age, whether you’re starting out, whether you’re an 18-year-old and you’re starting your first job, or if you’re a seasoned 40- to 50-year-old,” he told Yahoo Finance.
Young Aussies are being urged to keep some cash easily accessible for a rainy day. (Source: Josef Jindra/Getty)
ING head of consumer and market insights Matt Bowen said it was important to make sure young Aussies were prepared for the unexpected.
“Whilst emergency funds aren’t popular, having some money in a high-interest savings account can help when you’re in a pickle,” he said.
It’s generally recommended to have enough in your emergency fund to cover three to six months of your expenses.
“So whether it’s $3,000, $6,000, $9,000, whatever your expenses are for three months, that should be a rough indication of your emergency account,” Jindra said.
With the cost of living remaining high, it can be difficult to save anything at the moment. But even small savings can help.
If you put $20 into a savings account each week, for example, you would have more than $1,000 in a year, which can give you a bit of breathing room.
Barnes said her emergency fund would be able to comfortably tide her over for a few months if needed. Thankfully, she hasn’t recently run into any emergencies where she’s needed cash urgently.
“It’s more there as a safety blanket,” she said.
By putting in a separate bank account to her everyday spending, she’s also not tempted to dip into her funds for things that aren’t emergencies.
Jindra said it was important to build up an emergency fund and to make sure you were on top of your everyday expenses before you start investing.
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