01/05/2020
What is an emergency fund?
An emergency fund is an amount of money that you’ve put aside to cover any unexpected financial surprises that life may throw at you.
This is something that is very important right now and more than ever especially with everything going on at present with the Coronavirus. Many people are unsure about their future employment and job opportunities so having that bit of financial security behind them can help keep stress levels down in what can be difficult times for most.
How much should you have in an emergency fund?
Typically, an emergency fund should have at least 3-6 months worth of expenses. This will allow you to be financially secure for 3-6 months should any unfortunate and unforeseen circumstances happen in your life. Things can go wrong when it’s least expected, whether it be your car needing repaired or an item needing replaced.
What if I don’t have an emergency fund?
Don’t worry. You’re not alone and It’s never too late to start.
How do I begin to save for an emergency fund?
A great and simple thing to do is check your last 6 months of bank statements. Break down your monthly income and monthly expenditure.
You’ll soon be able to break down your expenditure in to two categories. ‘Essential’ and ‘non-essential’ expenditure.
Essential expenditure is expenses that must be paid. This could be Mortgage payments, Rent, Electricity, Council Tax, Car payments, phone bills, food etc..
Non-essential spending is what everyone enjoys the most. That is the extra things that we like to spend our money on such as Clothes, Netflix, Takeaways etc. Things that we don’t need but like to enjoy. This is where we can try and make savings.
Find out how much you have left at the end of each month. I appreciate this can be an eye opener for some. Although this is a simple exercise, it can be a shock to see where your money goes and how it could be better spent.
Find out what you can safely put aside each month in to your Emergency Fund. Don’t push yourself as you don’t want to have to dip into your emergency fund too early as that defeats its purpose. Start slow and over time you will be amazed at how your Emergency fund will increase.
Set yourself goals. Everyone’s income and expenses are different so don’t compare yourself with others. An initial goal of £100 is as important as someone with a higher income with an emergency fund of £1,000’s.
If your monthly expenditure is greater than your monthly income, don’t worry. Many people are in this situation and there are many ways to turn this around which we will go over in future posts.
