Why do I need an Emergency Fund?
An emergency fund gives you some breathing space to deal with life’s ups and downs and keeps the stress levels down. This money is there in case something urgent and unexpected happens to you or your family, like your car needs major repairs, or you lose your job. Having an emergency fund means you won’t need to borrow money if a crisis happens but just as important it will give you peace of mind.
What do I need to do?
Complete an expenditure questionnaire. This is the biggest hurdle; ignoring what you spend in case it scares you is common, but you might be surprised and it will certainly make you challenge whether you are getting value for money, on what you spend. Completing this exercise always results in spending cuts which can be redirected to build up your emergency fund.
Once you know how much you can afford to save, set up a separate savings account (that is accessible) and a standing order, ideally just after your payday. You won’t notice it’s gone!
I promise in 6 months you will be so proud that you have achieved your goal and question why you didn’t do it sooner as it was so easy.
Once you see your savings grow, so to does the motivation to keep adding. If you get extra money through the year, pay rise,bonus, tax rebate. Add them in!
Remember:- Your emergency fund is only for those expenses you really need to pay now. If you want to use your savings for something else, like a holiday, set up a separate savings goal.
How much is enough?
The general rule is that you need to have enough to cover at least 3 months expenses but ideally you should aim for 6 months and if you are the sole earner in the family or a business owner, aim for 12 months. Please don’t be put off by the numbers, steady savings will get you there before you know it.
Smart tip:- If you need to dip into your emergency fund, remember to top it up again afterwards.
Having an emergency fund ensures you are always ‘In Control of your Money’ which gives you ‘Peace of Mind’.
