Having an emergency fund is not something that many of us in the UK have, I know we don’t. Yet, it is probably one thing that we should all have and prioritise.
When you are on a tight budget and are really pushing to clear debt, finding money to put in another pot for a rainy day, is not easy. However, it is really important for your peace of mind and future to do this.
If you are unsure why or how to get an emergency fund, here are 4 key points to remember when getting started:
Why do you need an emergency fund?
Having an emergency fund allows you to keep living life, in case you lose your income. It is there to ensure that you can continue to keep a roof over your head and food on your table for a few months.
The key thing to remember is that this fund is here to stop you from reaching for those credit cards and loans, so ensuring you have enough in the pot is key.
How much do I need in an emergency fund?
Any starting pot is a good start but by the end, it is ideal to have about 3-6 months of outgoings saved in the pot.
Now I know, when you are trying to clear debt, you may not be able to commit the funds that are needed to this straight away. If you could put a little bit away such as £20-£50 a month, it will soon start to add up and create this fund for you.
Don’t be put off if it is taking a while, something is better than nothing!
Leave the pot alone!
When you are on a journey to becoming debt free, any money you can free up always goes into the debt but with this pot, just leave it alone!
You never know, there may not be a reason for you to touch it at all and in future, this could be used for retirement, the final payment on a debt or just a treat. For now, it is for emergencies only!
Keep the total value topped up.
Things are changing all the time, especially with rising costs lately. So it is key to keep revising the pot to make sure it can cover the costs of your outgoings still with these changing on a regular basis.
If you do need to dip into the pot at all if you have an emergency, it is important to make sure that you top it back up as soon as possible.
It may feel a little daunting getting a pot like this built up, especially with costs rising and you already being on a debt-clearing mission however, making sure that you have a safety net should you need it is key. If you are unsure how to build an emergency fund, this post from Savvy In Somerset is a great post to get you started and give you a better understanding.
Once you have built up your emergency pot, it is a great idea to start thinking ahead to other costs that are going out. For us, we have a Christmas and birthday pot which sweeps our change in from our purchases, this is great when that special day comes around and we are looking to treat family and friends, it means we have cash ready to go to make those purchases such as jewellery like these best size diamond stud earrings or days out for the kids birthdays.
We have also started to create a pot for costs coming up such as MOT, insurances and services that we need throughout the year.
