One of the most sensible things you can do financially is to build up an emergency fund. You never know what life could throw at you. A huge number of factors could mean you find yourself short on the cash front. We’d recommend having, at the very least, 3 months worth of expenses saved. The fact that an unexpected event will lead to you needed the money we’d also recommend keeping it in an account that you can access at all times without needing to give notice when you withdraw.
How much are you able to save?
So now you know that a minimum of 3 months salary should be in your emergency fund. Let’s take a look at how to achieve this goal. It’s time to dissect your monthly income with an extremely fine tooth comb:
- Make a list of everything coming in regularly
- Now do the same for your outgoings
- Rent / Mortgage Payments
- Utility Bills
- Monthly Food Expenses
- Motor Expenses: Insurance, Tax, Repairs, MOT, Servicing, Fuel etc
- Debt Repayments
- Personal Expenses
- Is there anywhere that you can cut back to increase the amount that you’re able to save?
Possible Areas for Saving:
- Do you subscribe to any magazines that you don’t need?
- Can you change your plan at the gym to minimise the cost? Maybe even changing your gym could help.
- Changing the way you shop for food – batch cooking, buying fresh veg and making your own sauces rather than buying jars can save you lots. Even consider shopping at a different supermarket.
- Are you paying a huge phone bill? Look into different options and save money each month.
- Can you cut back on eating/drinking out?
- Look for discount vouchers for restaurants/days out.
Don’t struggle every month trying to save your set amount, make it manageable and allow yourself enough spare cash to comfortably make it through the month.
Be Prepared For It To Take Time
Don’t expect to save your emergency fund overnight. For you to stay motivated and not put yourself in financial trouble it will take several months or even years to build up. Don’t be put off by the time it takes – keep in mind that this lump sum will one day get you out of a tricky situation.
If you acquire any large sums of cash over the year, such as bonuses or tax rebates, put those straight into your emergency fund. A great way to build your fund up quickly.
Key Aspects For A Savings Account For Your Emergency Fund
As previously mentioned it’s probably going to be an unexpected event that requires the use of your emergency fund. It’s important that you can:
- Pay in additional money when you can/want to
- Make withdrawals whenever you need to (this one requires self control to not make withdrawals other than in an emergency!)
Other aspects that can be beneficial in a savings account for this purpose are being able to manage them online and those than offer you a cash card for them too.
Some people keep their emergency fund in their usual current account. This is okay if you really need to, however, we’d recommend keeping your emergency fund away from your every-day cash flow.
Before You Start Saving
Building an emergency fund is a great start to healthy finances. If you currently have:
- Credit Card Debts
- Unauthorised Overdrafts
- Pay-Day Loans
- Debts from Door-to-Door Lenders or Home Credit
- Rent or Mortgage Arrears
Pay these off first – it will work out better financially. If you’re keeping up with your rent/mortgage payments and your debt/credit bills are under control you should start slowly building your emergency fund up.