Emergency Funds Are About More Than Money

Author: Unicia Veer

Most conversations about emergency funds focus on a number. Three months of expenses, six months of expenses, or a certain dollar amount sitting in a savings account for a rainy day. Yet, according to Kiwibank’s State of Savings Index, 74% of New Zealanders who are struggling to save identify the cost of living as their biggest barrier. (Kiwibank)

Money Month’s theme this year is emergency funds, and this statistic prompted me to think more broadly about what financial resilience really means. There is no doubt the traditional advice is sensible. Cash reserves matter; they provide flexibility, reduce stress, and can help prevent a financial setback from becoming a long-term problem.

However, I wonder if we’re sometimes too focused on the size of the emergency fund and not enough on what it’s actually trying to achieve. The suggestion that people simply need to save more and spend less misses the nuance that reality is often far more complicated.

Over the past few years, some of the most noticeable increases in household spending have been things that are difficult to stop buying: housing, rates, insurance, petrol, power and groceries. Economists would describe these costs as relatively inelastic. For households, it simply means there is only so much that can be cut from the budget.

So, if things are already tight, how do we build greater financial resilience?

I’ve come to think about this a little differently. Rather than focusing solely on emergency savings balances and spending plans, I find it more useful to think about how prepared we are for the unexpected.

An emergency fund is one form of resilience, and a very important one. Having cash available can help cushion the impact of an unexpected expense, a period of illness, or a disruption to income.

However, resilience can be built in many layers. Carrying little or no high-interest debt, having appropriate insurance in place, access to other sources of liquidity, and developing skills that increase our ability to earn income can all provide additional layers of protection.

I’ve also come to appreciate that some forms of resilience don’t appear on a balance sheet at all.

Recent natural disasters around New Zealand have reminded us of the importance of strong communities when the unexpected happens. Family relationships, helpful neighbours, friends who can lend a hand, and wider community connections can all make an enormous difference in a crisis. Strong support networks can help households navigate challenges and support recovery, reinforcing that resilience isn’t determined by financial resources alone.

Perhaps that means we should think about emergency preparedness more broadly. Rather than focusing solely on whether someone has six months of expenses sitting in a bank account, we could also ask:

If their income stopped tomorrow, what options would they have?
How quickly could they access funds if needed?
Do they have appropriate insurance?
How dependent are they on a single source of income?
Who could they turn to for support, advice or practical help if life didn’t go to plan?
What strengths, skills, or resources could they draw upon if circumstances changed?

Taken together, these questions paint a much broader picture of resilience than a savings account balance alone. They recognise that resilience is built not only through financial resources, but through the relationships, skills and support systems we can draw upon when challenges arise.

As advisers, we spend a lot of time helping clients build and preserve wealth. Yet one of the most valuable outcomes of wealth is not the money itself, but the options that money creates. An emergency fund is one of those options, but it is not the only one.

Ultimately, financial planning is not about eliminating uncertainty from life – none of us can do that. Instead, it is about building enough resilience that when uncertainty inevitably arrives, we have choices about how we respond.

And perhaps that’s the real purpose of an emergency fund: not to prevent unexpected events from happening, but to help ensure we have choices when they do.

Nāku te rourou, nāu te rourou, ka ora ai te iwi.

Disclaimer: While our advice will be in the context of your wider financial affairs, we will consider the impacts of tax and asset protection. However, we are not lawyers, tax accountants, or insurance advisers, and therefore we cannot provide specific estate, tax, or insurance recommendations or advice. Where we believe that such advice is required, we will refer you back to your lawyer, accountant or insurance adviser.