Why Everyone in the UK Should Have an Emergency Fund
It’s a fact that life is unpredictable. You never know when something unexpected will happen, and you’ll find yourself in a difficult financial situation.
According to research by Finder, A third of Brits have less than £600 in savings, and 41% of Brits don’t have enough savings to live for a month without income.
That’s why it’s important to have an emergency fund – a savings account specifically for unexpected expenses. This article will discuss the importance of emergency funds and how to set one up.
We’ll also provide tips on making sure your emergency fund is well-funded so you can rest easy knowing that you’re prepared for anything that comes your way!
What is an Emergency Fund?
An emergency fund is a savings account that is specifically for unexpected expenses. This could be anything from a speeding ticket to a car repair. The key is to have the money available, so you don’t have to put yourself in debt to cover the cost.
Imagine if you lost your job tomorrow. By having an emergency fund, you buy yourself time and make stressful life events less stressful, giving you a cushion to fall back on while you get back on your feet.
How Much Should I Save?
Most experts recommend saving three to six months’ worth of living expenses. This may seem like a lot, but remember – it’s for emergencies only! If you can’t afford to save this much right away, start small and gradually increase your savings over time.
How to Set up an Emergency Fund
There are a few different ways you can set up an emergency fund. The most important thing is to find a method that works for you and that you’ll be able to stick with.
Here are a few options:
Set up a Separate Savings Account
One option is to open a separate savings account specifically for your emergency fund. You can quickly transfer money into the bill when you need to, and you won’t be tempted to spend it on other things.
Online savings accounts like Chip offer excellent options vs traditional banks and have outstanding accounts that provide interest and the ability to withdraw money at short notice.
Set up a Separate Savings Goal in your Existing Savings Account
Another option is to create a designated savings goal in your existing savings account. This could be a specific amount of money or a certain percentage of your account balance.
Use a Budgeting App
Finally, you could use a budgeting app to help you save for your emergency fund.
Budgeting apps help you save as you spend and can be a great way to build up your emergency fund quickly. They can help you build an emergency fund, but they can help you live a more financially healthy life by making you more conscious of your spending.
There are many different apps out there, so find one that fits your needs and lifestyle and a lot of them are free to use, so it is a no brainer.
Tips for Building your Emergency Fund
Now that you know how to set up an emergency fund, it’s time to build it up! Here are a few tips:
- Start small and gradually increase your savings over time.
- Save any extra money you have. This could be from a bonus at work, tax refund, or gifts from family and friends.
- If you have a lot of debt, focus on paying that off first. Once your debt is paid off, you can save for your emergency fund.
- Create a budget and stick to it. This will help you free up money to save for your emergency fund.
- Automate your savings. Set up a monthly transfer from your main account to your savings account, so you don’t have to think about it.
- Are you living with someone? Do you manage finances as a team? Building an emergency fund is more straightforward when doing it with someone else. If you have a joint bank account, set up using it to make an emergency fund. It can be easier to conquer your financial goals.
What to do if you Find Yourself in a Financial Crisis?
If you find yourself in a financial emergency and need to use your emergency fund, that’s okay! The key is to replenish your fund as soon as possible, so you’re prepared for the next emergency.
The Benefits of Having an Emergency Fund
If you’re not convinced by now that having an emergency fund is a good idea, here are a few benefits to help you change your mind:
- You’ll have peace of mind knowing you’re prepared for anything.
- An emergency fund can help you avoid going into debt.
- It can help you cover unexpected costs without making drastic changes to your budget.
- An emergency fund can give you financial security in an uncertain world.
Final Thoughts on Emergency Funds
An emergency fund is an essential part of any individual or family’s financial security. By setting up an emergency fund, you can ensure that you have enough money to cover unexpected costs in an emergency. Remember, the goal should be a minimum of 3 months worth of take-home pay.
Use an account that you can withdraw from easy to access your money quickly in an emergency.
We have discussed some easy ways to set up an emergency fund. Find the right one for you and get started today! Your future self will thank you.