Otherwise known as a “rainy day fund”, an emergency fund is your go to pot of cash for the unexpected costs in life. In less than four minutes this blog will tell you what an emergency fund is, if you need one, and how you can build yours up.
What do you use an emergency fund for?
Washing machine goes rumble boom, that weirdly coloured roof leak comes back, or you hurt a limb doing that sport you love. Clear cut emergencies. But sometimes what falls into that category can differ from person to person. So we created a list of what else your emergency fund could be used for:
- Car repairs
- House repairs
- An unexpected medical bill, e.g. emergency dental treatment
- Paying for the basics if you lose your job
- Paying your bills if you can’t work for health reasons
Do you need an emergency fund?
Could you pay for the above from your monthly salary and still take care of your essential outgoings? If the answer is no, then you should consider putting money aside to cover any expenses you don’t see coming.
Reasons not to save for an emergency fund
There are a couple of reasons an emergency fund might not be right for you. These include if you:
- Don’t have more urgent costs to cover like debts with high interest charges (credit card bills or pay day loans)
- Don’t earn enough to put any money aside or your income doesn’t cover your expenses
How much should I save for an emergency fund?
In an ideal world your fund would cover your essential expenses (rent, bills and food) for at least three months. This amount varies from person to person though, as more than that might be needed if you have a partner or children that depend on your income.
How do I save for my emergency fund?
Saving can be hard. Even more so when hitting your target doesn’t end with getting your hands on that thing you’ve always wanted. Financial peace of mind is the motivation here but if that isn’t enough we’ve got a few tips that may help.
Keep it in a separate account: Avoid temptation by keeping your savings far from your more active current account. If you put it in an easy access ISA you could even earn interest on the money.
Set up a standing order: Move the money for your emergency savings into your separate account as soon as you get paid. Setting up a standing order means you’ll have put it aside before you’ve had a chance to miss it.
More help with your finances
Unless you have any debts, setting up an emergency fund is one of the first steps we recommend on our app. It gives you a firm financial footing to get control of the rest of your money. Want more pointers? Check out our app for financial guidance tailored to you or talk about emergency funds in our Facebook group.