It’s a fact of life: Unexpected emergencies happen. To everyone. It could be a dead battery on your car, or even worse, losing your job. How prepared you are for one of these situations can make all the difference in a stressful time. Half of UK adults (47%) do not have money set aside in case of serious crises or life events, such as periods of unemployment, legal trouble, bereavements, or serious illness, according to Aldermore’s Annual Savings Tracker research .
By taking steps to build your emergency fund, you’re giving yourself the security of knowing you can cover unexpected expenses if anything happens.
How to start an Emergency Fund
Before taking steps to start an emergency fund, think about how and when this account will be used. Your emergency fund is money that’s set aside in a separate account to be used for emergencies only! We know that designer bag or pair of shoes seem like an emergency but trust us, they’re not!
It may take time to build an emergency fund, but as long as you have a solid plan, the process shouldn’t feel so overwhelming.
Here are four steps to help you get started:
Start with small steps
Saving six months or more worth of expenses can feel daunting. That’s why it’s so important when figuring out how to start an emergency fund to begin with small goals and gradually work up to your long-term objective. Set up small goals to work towards and keep gradually increasing until you have 3-6 months covered. You may think ‘there is no way I can save enough money’ but honestly, every pound which you put towards that fund matters, even if it is just £50 every month. In 6 months, that’s £300 more than what you started with! Your financial goal is within your reach!
Out of Sight, Out of Mind!
The purpose of an emergency fund is to have fast and easy access to your cash. Compare the best high-interest savings accounts and find the best one that works for you. You may also want to consider keeping your emergency fund cash in a different bank from your regular current account - this will reduce the temptation to withdraw money as it’s out of sight, out of mind.
Just Automate It!
To make starting your emergency fund easier, you can set aside a certain percentage of salary each month and put it straight into your account. This can either be an automatic deposit on payday or a separate direct deposit to another account.
Can’t Stop, Won’t Stop!
If you’ve reached your emergency fund goal, you shouldn’t stop there! Circumstances can always change based on life - whether it’s marriage, children or moving country - your monthly expenses might increase as a result and if that happens, the emergency fund you originally saved may no longer be enough. Additionally, if an emergency happens and you need to use your fund, you’ll have to replenish it at some point. By learning how to start an emergency fund now you can avoid serious financial stress later. By taking intentional steps to start an emergency fund, you’ll have peace of mind before you know it!
This article should not be read as personal financial advice. Individual investors should make their own decisions or seek independent advice.