As the last 18 months has shown, life can throw many obstacles your way, and we cannot know what lies around the corner. You may be comfortably off right now, and in a good job. But that lifestyle is not guaranteed. That is why it is always a good idea to have an insurance for when things take a bad turn. We look at the importance of an emergency fund.
What Is An Emergency Fund?
Consider how you’d handle the financial situation if…
- You were fired from your job.
- In the dead of winter, your boiler broke down.
- To pass your car’s MOT, you needed a [something expensive, plus labour and VAT].
- Your pet need surgery, which your insurance will not pay.
- You’ve received a notice from your landlord, and you’ll need to pay 6 weeks’ rent and the cost of a moving van up ahead.
- If a member of your family becomes ill and you need to take time off work to care for them
What would you do to cover the costs? How did you manage to keep going?
Having an emergency fund provides you with a safety net to help pay for whatever comes up when you need money quickly, and it eliminates the need to rely on credit cards or loans to get by.
Do I Need An Emergency Account?
Yes, I’ll keep it brief. Yes, an emergency fund is required.
If you don’t have easy access to cash in the event of an emergency, you’ll wind up paying more because you’ll have to borrow money and pay interest. You may believe you’re indestructible, that everything is going according to plan, and that you don’t require a savings cushion right now. Situations can, however, change in an instant, so it’s better to be safe than sorry. Even if you have insurance to cover some emergencies, it is unlikely that it will pay out in all cases.
But don’t fear, getting started is simple.
The Importance Of An Emergency Fund – How To Begin Your Fund
Determine how much wiggle room you have in your budget and put aside a portion of it as soon as you’re paid.
You won’t have to worry about the money every pay day if you set up a standing order for it, and it’ll be gone from your account before you even notice it’s there. But don’t panic; you won’t have to save this sum indefinitely. You can end after you’ve saved enough (or maybe even continue saving into a higher interest account for your future).
It’s also worth remembering that if you need to utilise your emergency fund for any reason, you’ll have to start saving again to replace the cushion. As a result, maintaining a saving habit could be extremely beneficial.
The Importance Of An Emergency Fund – Add Unexpected Cash
Have you received a tax refund or rebate? Maybe you got a raise at work? Perhaps you’ve paid off a loan and have some cash on hand? Got some money from a twice-removed Great Aunt for your birthday?
It’s fantastic to have extra cash, but instead of spending it, consider putting it straight into your emergency fund.
This will assist you in accumulating your funds much more quickly.
The Importance Of An Emergency Fund – Government Assistance
The government offers a Help to Save savings account that pays a 50% bonus on top of your savings!!
That is HUGE! (It’s also not going to be taxed). As a result, if you’re saving for something like an emergency fund, you won’t need to put as much of your own money into it.
How Much Should I Aim To Save?
Start with an emergency fund that can cover at least three months of spending, which is why everyone’s situation is different.
Take a look at your budget and see how soon you can figure it out. Add up your mortgage/rent, property tax, utilities, any insurances, food, and any other expenses you have. Then double that number by three, and that is the target you should shoot for. Break down what you need to save up into chunks, to make it less stressful and feel more achievable.
As for where to put the funds, a normal savings account is the best path to take in my opinion.
