I previously wrote a post about How to Build an Emergency Fund. Now I want to share with you why everyone should have one.
What is an Emergency Fund
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 worse, put yourself in to debt. Recently my washing machine just stopped working, I was so grateful to have my emergency fund. I was able to go out and buy a new one without worrying or putting it straight on to a credit card.
Why you should have an emergency fund
It is so important to have an emergency fund. Everyone should have back up savings for when the worst case scenario happens. We never picture anything major happening to us, we always think it will be someone else. But one day, you could lose your job, become ill or just need to buy a new washing machine! If you have an emergency fund ready, then if something happens, it takes the pressure off you for a little while whilst you get yourself back on your feet.
It is advised to have three months outgoings saved up. This sounds like a lot and isn’t always easy to do. The first thing to do is aim for £1000 in savings. This will take the edge off things. It gives your a buffer to be able to pay your bills without getting straight in to debt.
If your finances become unstable, you want to have peace of mind that you can still support yourself and your family. An emergency fund allows you to do this.
How to save for an emergency fund
Saving for an emergency fund can be hard if you’re already on a very tight budget. However there are still ways you can build up your savings without it putting too much train on your finances.
- Skim your bank account – this involves rounding down your bank account to the nearest five pound. Have a separate bank account and every few days, transfer over any odd pence that is in your main account. For example, if your balance is £236.43, transfer £1.43 and round your balance down to £235. You won’t miss the small amounts and they will soon add up. This will help grow your emergency fund savings.
- Declutter – have a huge clear out at home and sell any unwanted items. You can sell anything from books, clothes, kids toys, kitchen appliances. We all have items lying around the house that we haven’t touched for months or even years. Now is the time to just declutter completely and make some extra cash in the process. Anything you make can be added straight to your emergency fund.
- Earn extra cash – There is only so much saving you can do. If you are already on a tight budget, you won’t have a lot of spare cash to put aside in to savings. Now is the time to start earning extra money. There are so many different ways you can do this. I’m a big fan of side hustles and I wrote a list of 27 ideas to get you started. A lot of these can be done in your lunch break at work or when the kids are asleep. Put all the earnings you make straight in to your emergency fund.
I asked other UK Money Bloggers their views on an emergency fund. Here are what a few of them had to say…
After getting myself into a bit of credit-card debt a few years ago, I swore I’d never use them again so I made sure I always had something to spare in the post ! Before I went self-employed, I made sure I’d got enough to cover me for things I didn’t expect-like sick days or unexpected car repairs, it’s tempting to dip in but it’s such a relief I’ve got it when something comes up unexpectedly Jen from The Bloglancer
An emergency fund is vital in case the boiler blows up, the car breaks down, a job ends suddenly or you get hit by everything at once. Stashing some cash means you can cope better with whatever life throws at you, without maxing out expensive credit cards and overdrafts. Our savings made all the difference when we moved to the country and my husband had to look for a new role closer to home Faith from Much More with Less
For us an emergency fund is vital if my husband’s employer pulls overtime again (which they’ve done in the past) as this can mean a drop of £500+ a month. An emergency fund allows us not to worry about that Katy from Katykicker
There have been many times recently we have been grateful for our emergency fund. A family member was taken seriously ill earlier this year and both my husband and I ended up taking a week of emergency leave from work. Being able to do this without worrying whether or not we could pay our bills at the end of the month made an already difficult time that little bit easier. Fiona from Savvy in Somerset
For me an emergency fund is essential and I contribute to ours as part of my regular ‘outgoings’ each month. In the past it has come to the rescue when our car was written off, when the washing machine broke and it was most useful when our previous landlord went into arrears with his mortgage. The bank gave us 60 days notice to move out, while I was on maternity leave with a small baby. Without it we would have struggled to cover the costs of moving as well as a deposit and first months rent on a new place Jennifer from My Mummies Pennies
Life can knock you off your feet, so it’s great to have a nice squishy cushion to fall back on. We like to make sure there’s a minimum amount of savings in the bank before we make any major purchases, so that our cushion stays plumped in case of the unexpected banana peel! Lee from Homely Economics
For me an emergency fund allows me to feel calm, secure and happy, because I know that I am able to cope should something unexpected happen. It allows me to enjoy my life to the full, without worrying about any unforeseen expenses. Eileen from Your Money Sorted. Eileen also has a great challenge to help you build up your emergency fund.
Nikki, The Female Money Doctor shares her story of how she saved up her emergency fund. If you need extra motivation to start your own emergency fund, take a read as she shows it can be done.
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