What is an emergency fund? Good question… essentially, an emergency fund is savings that will help cover you in case of a real emergency. This could be losing your job, sudden house repair or an unexpected car repair. Anything that you will need money upfront for. An emergency fund is ideal to fall back on without having to panic too much or put yourself in to debt.
How much money should be in your emergency fund? This is different for each and every one of us. Its all down to your own personal situation. A lot of finance experts recommend enough to cover 3-6 months worth of expenses.
Most people understand the need for an emergency fund, but have trouble building up enough savings to keep to one side for when they may need it. Follow my tips below and start growing your own emergency fund.
1. Open up a savings account
First thing you need to do to set up an emergency fund is to open a separate savings account so you can put you money to one side. Make sure it is an account that you can access your savings quickly in case you need it at very short notice. Ideally, you should choose a savings account with a high interest rate. This way you will get as much back on your cash as possible which will all help build up your savings.
2. Work Out How Much You Need to Save
An emergency fund is there to cover your monthly outgoings in case of an emergency, for example, redundancy. It is a good idea to have three months money saved up to see you through if this was to happen. It may seem easier to work towards just one months money to start with. When you hit that target you can then aim for the three months.
3. Start Small
It can be very daunting thinking about building up a savings account of three months money. Depending on your monthly outgoings, this could range from £3000 upwards which is a lot to try and save. So, start off small. Even if its just the odd £2 here or £5 there, it will soon add up. Try making small cutbacks, so instead of buying a coffee on the way to work, take your own from home and put £3 in to your savings. Before you know it, these small amounts will turn in to a healthy sum.
Once you have got in to the habit of saving your loose change, start building up to larger amounts. Make savings part of your monthly budgets. Set up a direct debit of what you feel you can afford each month, so then it goes straight in to your emergency fund before you even realise. If you do this at the beginning of the month, you won’t notice so much. If you wait until the end of the month, you may need the extra cash for other bits and bobs.
4. Cut Back Wherever Possible
Once you’ve got in to the habit of saving up the small amounts, its time to look at where you can cut back to make bigger savings. Start by looking at your household bills. Can any of these be decreased? First of all, check over all of your expenses and see where you can save. Always shop around too. Check out comparison websites for all of your utilities, i.e gas, electricity, your mobile phone etc and make sure you are getting the best deal for all of them. Most comparison sites, you can switch there and then and they do all the hard work for you, which is always a bonus. By switching to all the best deals that are available to you, you could easily save yourself a few hundred pounds over the year.
Do you have cable TV? Do you really need this? Nowadays, with Netflix and other streaming devices, a lot of the time we watch things on here rather than on satellite TV. If you find yourself only watching the basic channels on TV and boxsets/movies etc on Netflix then think about cutting back your TV package. Do you really need to have the top deal when you only watch 5 channels?
5. Get Started
And finally, just get going on it! The sooner you start the sooner you will have your emergency fund saved up. And remember start small and gradually increase your savings. Once you’ve reached your target, just let it sit there in savings until the day comes that you may need it.
How did you save for your emergency fund? Are you currently building yours up? I’d love to hear your stories.
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