How much should you have in your rainy day fund?

How long would you survive if you stopped earning an income? For financial advisor Lisa Dudson, the answer falls somewhere between three and six months.

She told The AM Show on Thursday no one would argue with the fact New Zealanders aren't saving enough.

"In the financial planning world they talk about having an emergency fund - a rainy day fund equivalent to three to six months of your expenditure."

For many this would be tens of thousands of dollars, Ms Dudson saying the first steps are working out what you spend in three months and separating needs from wants.

Reducing mortgage payments is crucial for bumping up savings, and homeowners should look at revolving credit mortgages, or offset mortgages.

In an offset mortgage, money in a separate savings account is taken off the capital still owed.

"You can have $15,000 sitting in a savings account which can offset the amount of money you pay on you mortgage".

But the challenge with traditional revolving credit is the discipline required, she said, because the amount of money available can be seen.

Albert Einstein described compounding interest as being  "the eighth wonder of the world",  she said, "which simply means if you start with a very small amount of money today, long-term you'll be amazed at what that grows to".

But will the effect of compounding interest beat the repayment of debt? Ms Dudson said there two sides to the coin: technical and personal. 

"It's about discipline, because when you leave people to their own devices they'll find lots of other reasons for where to put their money."

In an exercise, she got people on annual incomes between $40,000 and $50,000 in Auckland to forgo buying lunch for a month.

"All of them said they had no money, but within a month they had between $400 and $700 more than they thought they had. It's also about looking at the takeaways and all the little things you spend your money on."

Does that mean we have to give up our social life, then? Take the living out of life?

Not at all.

"You don't have to socialise at [upmarket Auckland restaurant] Euro. if I go back to my university days, we had potluck dinners and casks of wine."