Plenty of New Zealanders live payday-to-payday, leaving little in the kitty to cope with unexpected financial disasters.

If you lost your job how long would it take before you ran out of money? If your car blew a gasket or your washing machine sprang a leak could you cover the repair bills?

How much do you need?

Three months’ worth of expenses is considered a good rule of thumb, but the size of your emergency fund will depend on your circumstances.

If you’re single, flatting and don’t own a car, your financial obligations will be lower than if you’re the sole breadwinner for a two-car family with a mortgage. Use a bills calculator to help work out what your regular bills and expenses are.

The kind of insurances you have will also impact how much you need in a rainy-day account. Take a look at your policies and see if you have any redundancy or serious illness trauma cover.

Don't be daunted

Don’t be put off by the thought of having to save thousands of dollars. Be realistic about how long it will take you to save an emergency fund - you don’t have to build it up overnight, you just need to get started. You might be surprised how quickly small but regular savings add up.

As well as regular deposits from each pay, look at ways you can add extra money. If you get a tax return, a pay rise, or a bonus add the money to your rainy-day fund rather than blowing it.

To help keep you motivated, see if you can add a goal tracker to your account to show you how much progress you’re making, and how long it will to reach your savings target.

Choose the right account

Set up a separate bank account, one that isn’t linked to your EFTPOS card. You can even set up your internet banking so the account is hidden when you log in – this way you won’t be tempted to dip into it if your everyday accounts are running low.

Compare the everyday and savings accounts on offer and choose one with the best interest rate and access to suit your purposes.

What’s an emergency?

You’re setting this money aside for emergencies, so unless your vitamin D levels are dangerously low, don’t dip into it for a mid-winter trip to Fiji.

It’s worth taking some time to define what would constitute a financial emergency for you, and why you’re saving the money. It might be job loss, car repairs, illness or an unexpectedly large power bill.

How much is too much?

Once you’ve reached your initial goal, you might decide you need more savings in order to sleep soundly at night. At this point it would be worth looking at the way you structure your emergency fund.

You could look at splitting the money, with a portion of it in an instant access savings account and some in higher interest options, like short-term Term Deposits or a Notice Saver account. With a Notice Saver account you can keep adding money to your savings whenever you like, so if you find $2 down the back of the couch, you can pop that in too. Try our account selector or investment selector tools to work out what might work best for you.

This is intended as general information only. It does not take into account your financial situation and goals and is not personal advice. For advice about your particular circumstances please see your financial adviser.