Emergency fund

Have you ever been stressed about money and felt unsure how you would deal with an unexpected big expense coming your way? Many of us have, myself included 🙋‍♀️

Since I was little, I was thankfully taught by my parents to save and have a bit of extra cash ‘just in case’ stashed somewhere. I guess you could call it having an emergency fund. I always had a little spare money that made me feel more in control and at peace in case anything happened.

I didn’t have big expenses or a mortgage until fairly recently, so it wasn't quite as important, but now I realise how having a solid emergency fund can provide you with a cushy safety net and save you from having to go into an unwanted debt.

Savings has been an important topic during this cost of living crisis especially as people in the UK have been depleting some of their saved cash quicker than ever.

In 2021, 51% of people surveyed did not have enough emergency savings, meaning that many would be in trouble if an unexpected expense came their way.

Turns out we’re pretty bad with money and I really want to help change it with this newsletter.

What exactly is an emergency fund 🆘

Usually an amount of money set aside for unexpected expenses such as job loss, medical or dental bills, urgent car or home repairs and other unplanned emergencies.

The general advice is to have a minimum of 3 or ideally 6 months worth of basic expenses in an easy to access savings account. If you are self employed, I would aim for 6 months as a minimum to be on the safe side.

For retirees who are no longer working it’s advised to have a little bit more - 1 to 3 years of expenses covered.

How to calculate what you need 💰

If your total monthly expenses including rent or mortgage, essential bills, food and transport are £2000, then you would want to have a minimum of £6,000 saved. However, it would be less risky to have up to £12,000 in an emergency fund.

What to keep it in 🏦

Ideally you want this money in an easy access savings account or a cash ISA that pays you the highest rate possible to protect your money from inflation.

Often it’s worth looking on comparison sites which bank pays you the most including some online only offerings.

Can you save for emergency fund and invest at the same time? 📈

You might be wondering which is more important to do first. In most cases it would be best to save up for your emergency fund first, but if your job is fairly stable and you’re less likely to have an emergency, you could do both simultaneously.

This is something I am currently doing - part of my take home pay is going into investing and part for rebuilding my emergency fund. I think you can do it both, but it depends on your personal situation.

Why do we all need it

Firstly, to feel less stressed about our own financial situation and know that we have it under control when things go south.

It could save you from having to take the first job you find when you get laid off, it could help you avoid borrowing money from the bank at extremely high interest rates or having to ask for financial help from others.

It can also help in situations when you may want to leave your current living arrangement or when it’s not safe to stay. This is especially important for women, who may be in a vulnerable situation at home. We all need a little safety net for those instances.

My weekly recommendation

I was absolutely blown away by this podcast episode from Mel Robins who had Tiffany Aliche also known as The Budgetnista about how to be better with money.

So many things they talk about openly we could all relate to, especially making silly financial decisions when young. This one hit home for me for sure.

The last 10 minutes is pure gold and almost made me tear up, but I strongly recommend you watch the whole thing for many more nuggets of wisdom from Tiffany.

Until next time ✌️

Lina at Money Blues