Savings statistics show that we’re able to save less than ever, which makes it even more important to put aside to find effective ways to maximise our savings and ensure they go as far as they can. Building an emergency fund for worst case scenarios is essential for giving yourself some protection.
Planning for an emergency can be quite tricky as there are many different emergency situations, and the costs may differ from person to person and situation to situation. Your emergency may be a large, unexpected expensive such as a broken appliance or it could be something more life-changing such as losing your job.
Building an Emergency Fund
Your emergency fund should be enough to ensure you can get through a difficult period or fund that expensive but necessary purchase. It is recommended your emergency fund should be around 3 to 6 months’ worth of your regular income. This sounds like a lot but if you begin saving slowly, it will soon build up. Your emergency fund should be enough to cover your essentials for a short period, so the savings should just be to cover the basics, forget your treats and extras just for now.
Determining how much to save will require a little maths. You’ll need to calculate 3-6 months of your essential living expenses such as:
- Rent or mortgage payments
- Medical costs
- Childcare costs
- Transport and work expenses
So, if all this comes £1,500 you should aim to save between £4,500 and £9,000. This kind of saving will give you some peace of mind should an emergency happen and help protect you and your family if you hit hard times. This figure can seem overwhelming so think of it in smaller chunks. Begin by aiming to reach that first £500 and then the next £500 and work slowly up.
Build Saving into your Budget
You need to treat your emergency fund as a necessary monthly expense. This means it needs to be built into your budget. Set a goal to save a percentage of your pay for emergency purposes every month. If a percentage doesn’t work for you then you could opt for a set amount such as £50 or £100 a month which will quickly build up and be extremely useful if an emergency does occur.
Automate to Succeed
Automating your finances avoids the temptation to skip your savings one month. The temptation to spend the money can be high, especially if you have children or it’s holiday season. Set up periodic bank transfers or direct debits into your savings account. While you may want to spend your earnings on little treats and extras, having an emergency fund is something you really shouldn’t live without so should be higher up the priority list.
Boost your Emergency Fund with Bonuses and Tax Refunds
It’s always nice when you get a work bonus or a tax refund and the temptation to use it all up on something fun and frivolous is understandable. Consider making a compromise and splitting your work bonuses. Have a treat but deposit the bulk of your extra cash in your emergency fund and feel the satisfaction of knowing its there for safety’s sake in the future.
Keeping Emergency Savings Safe
The days of keeping your savings under your mattress are long gone and to make the most of your emergency fund you need to keep it in a reliable savings account. You want it to be in an account you can easily access in the event of an emergency but accruing interest is always nice too! An online saving account can be a great option as most are easy to access but still keep your funds away from your regular outgoings.
An emergency fund might seem like a step too cautious, but when emergencies strike, easy access to money is essential. No one wants to think about the worst-case scenario but planning for it means you remove stress should the time ever come.