Life is full on the unexpected. As much as we plan our days, weeks, months and years, things happen that are simply out of our control. What would you do if something bad was to happen? How would you pay the utility bills, keep a roof over the heads of your family or be able to afford the price of the emergency? One of the things we are so often advised and encouraged to do is set up an emergency fund. What exactly is one of those and where do you keep it? How much should you pay into it and what is the ultimate financial goal to retain in that fund? Let's have a look at some emergency fund UK options so you can get yourself and your finances into order should something happen.
What Is An Emergency Fund?
Firstly, what exactly is an emergency fund? It is also known as a contingency fund and is a pot of money put aside to be used in the case of mishaps, complications or unexpected financial expenses. Having some security in place can be a great way of easing your mind. If something was to happen, you have the money in place to cover whatever needs to be taken care of. That means it's one less thing off your plate. one less thing on your mind. Allowing you to concentrate on the event that has happened rather that fretting about cash. An emergency fund can be a lifeline to your nearest and dearest should something happen. Your family are able to focus on the situation at hand, knowing the bills are taken care of for a little while.
A Safety Net In Times Of Need Or Distress
There are a number of different things that could come under the umbrella of need and distress. It could be unexpected car repairs. Maybe home improvements that you've been putting off but have got worse so you need to get them sorted. Perhaps you were to lose your job without notice, but you'd still have mortgage payments and utility bills to pay for. Maybe one of the worst things would be if someone who to die.
Medical emergencies, travel you didn't know you'd have to make and even moving expenses could be assisted with your financial safety net. Your emergency fund UK needs to be able to sit in a savings account, ideally one where it will grow due to interest. You need to make sure you can access the money without delay. This means you need to choose a bank account with easy access withdrawals. This isn't going to be money that will last for years on end. It will help you out in the here and now and cover your bills for a certain amount of time.
How Much Should I Have In My Emergency Fund UK?
We all have different amounts of outgoings every month. Depending on where we live, what we buy and what bills we pay. That said, the absolute basic bills would be your mortgage or rent, utility bills such as electricity and water and food. The general opinion is that should have finances to cover somewhere between six and twelve months of these bills. So that should be your goal amount. Six months minimum of bills to keep food on the table, a roof over your head and the heating on. Do the maths and figure out the monthly amount that your family needs for these bills. If it is £900, you need to multiply that by six to get your half year amount. Times it by twelve to get your annual emergency fund figure. £900 per month would be £5400 for six months. It would be £10800 for the year.
Whilst we look at this money as something to cover your bills for a certain amount of time, you might have to dip into it for one off emergencies. A car payment of £1000 would keep you on the road and be able to go to work and continue to earn a living. If you take out that £1000, you will need to replenish the account with it over time. There are no emergencies that your emergency fund UK shouldn't cover. However you need to be sure that you don't use it as a way to put a plaster over a problem. You need your emergency fund to be for emergencies, not bailing you out of bad habits.
How To Build Your Emergency Fund
So, how do we go about building your emergency fund? Well, to start with you need to figure out that goal amount and then set up a bank account to pay into. This could be linked with your current account or a separate savings account with a higher interest rate. Then you simply need to start squirreling money away into it. You might have a make lifestyle changes in the short term to be able to move money into an emergency fund.
However lifestyle changes in the short term can show you just how much you need them in your life, helping you make longer term differences. You might be able to sell some things you no longer need or clothes you no longer wear. This can be a great way to build your emergency fund UK. Look at your emergency fund like any other bill. At least until you the amount of money in there that you wanted. You'll be surprised at how quickly you can build up your pot.
An emergency fund can be an absolute lifesaver if something was to happen to your situation or your family's circumstances. Of course, not everyone will be able to put aside money for six months worth of bills and not touch it. The cost of living is hard at the moment and it might simply be beyond your financial circumstances right now. If you can do what you can, you are able to take a little of of stress of your shoulders if an emergency was to happen. Some financial security can help you remain focused on the issue at hand and work through it without that extra worry.