How To Build An Emergency Fund And Why You Should Have One

It's always a good idea to be prepared for any sudden expenses such as a broken washing machine, a new boiler or even car repairs as you never know what the future has in store for you. You could also be faced with loosing your job, being evicted if your landlord decides to sell up or have a family emergency where you need to travel. Which is where an emergency fund is useful especially if you're looking to buy a house as you'd have to pay for any house maintenance yourself.

I started my emergency fund a few years ago after my first child was born, since then I have used it for all sorts of things as I didn't have any additional savings. Now that I have a savings account for a house I only use the emergency fund for emergencies!

How to build your emergency fund

Determine how much you need 

You don't need to have thousands saved up but I'd suggest aiming for £1000 first especially if you are trying to get out of debt or save for a house. Otherwise save up as much as you can. The good news is you don't need to meet your emergency fund target straight away, you can save along side saving for a deposit on a house or other savings and split this from each pay-check for example bills 65% savings 25% emergency fund 10%. 

Decide where to keep it 

Anything over £1000 I'd put away into a savings account to make the most of the interest. Initially I'd recommend starting a money saving challenge such as the 365 day money saving challenge or the 52 week challenge which will see you save it up across the year and putting it into a money tin which you can't open. My emergency fund is in an online account alongside my current account so I can easily access if and transfer money over when needed. I currently transfer £50 a month into the fund and also once my savings tin hits £1000 I'll then add that in. There's not really any minimum or maximum amount to have, the most important thing is to save what you can. Whether that be £20, £50 or £100 a month. 

Set up an automatic payment 

If you prefer to take the money straight out of your bank into your emergency fund treat it like a bill and set up an automatic payment on payday each month. This way you aren't seeing the money and won't be tempted to use it. 

Only use it for emergencies! 

This doesn't mean dipping into it for a takeaway or a night on the town and clothes or other luxuries don't count either! The emergency fund is for just that - emergencies! Many people don't have money put aside for rainy days and as a result turn to taking out a credit card or loan. To avoid doing this you need to have an emergency fund saved up to use only for emergencies. Life surprises us with good and bad emergencies, but you need to realise what qualifies 

Live below your means 

It may be hard to save a percentage of your wages every month, but by making a few cutbacks here and there you will soon see your emergency fund grow. Try living below your means for a few months and give up a few luxuries. This could involve giving up smoking, nights out, a takeaway or shopping ban or getting rid of your gym membership. 

Make some extra money 

As well as cutting your expenses it is also worth looking at extra ways to make money. Whether it be finding a new job or asking for a pay rise, selling your belongings on eBay or having regular car boot sales. There are plenty of ways to bring in some extra income. 

Do you have an emergency fund? If so, how much do you have set aside?

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