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What’s the emergency? The problem is, you don’t know until it happens. And if you’re not prepared for it, you can end up in a sorry financial mess. Because if you don’t have any funds to cover an emergency, what you don’t want is to have to turn to your credit card. It’ll cost you more in the long run, and you’ll have to find the money to pay it back. Here’s what you need to know about emergency funds and why it’s so important to make sure you have one.
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Why do you need an emergency fund?
What would you do if your car engine failed, and you needed a new one? Or you got a puncture in your tyre, your spare has seen better days, and you need to replace them both? Imagine if your boiler broke down, what would you do then? You need heating, right? Boilers aren’t cheap, either.
Actually, we recently had to replace our boiler. It was a painful lesson learned and one I won’t forget in a hurry. Fortunately, we had an emergency fund in place to pay for it, but now we need to replenish that fund.
The problem is, if you don’t have an emergency fund in place to cover such emergencies, you’re going to have to borrow money to pay for it. And borrowed money has to be paid back. But how much should you be aiming for? What’s a good amount?
What is a good emergency fund amount?
If you’re on a journey to become debt-free, you need to be sure you have a decent buffer in place should any problems arise. For example, what if your washing machine dies and you need to buy a new one? A washing machine is not something you can do without.
A good starting point for an emergency fund is £500 – £1000. A £500 emergency fund would cover you for such a situation as a broken down washing machine, but depending on the emergency, you might need a bigger buffer. But as mentioned above, if you’re on a journey to become debt-free, you want to start paying that debt down as soon as you can. £1000 is a good amount to aim for and will tide you over in an emergency.
If you’re not paying off debt, it’s a good idea to build that emergency fund up to 3-6 months’ worth of expenses. If you lost your job, you want to feel secure in the knowledge that you’ll have money to cover you and tide you over until you can get a new one. 3-6 months’ worth of expenses should include basic things like your mortgage, utility bills, food and fuel.
How to make extra money for your emergency fund
It’s all very well knowing that you need to put an emergency fund in place, but how can you do that if you feel that you’re already stretched?
Well, first things first, you need to take a look at your budget.
Once you’ve saved money where you can, it’s time to start looking at ways to make extra money.
There are a few options here:
1. Sell your stuff.
People will really buy anything, so get listing. You can use eBay (fees apply), Facebook Marketplace, Shpock, and many other selling sites. A quick Google will bring up a list of the more popular/successful sites. Be sure to mention that your items are on sale elsewhere. You can sell clothes, books, utilities, anything goes! Just make sure you check the selling conditions of the site you’re using.
2. Use an automatic savings app.
There are loads of apps available out there, such as Plum*, which will analyse your spending and then automatically save small amounts for you. When you’re saving £3-£4 a time, it can soon add up. It’s no different to spending £3-£4 in the supermarket, other than you still have the money at the end of it.
* – Affiliate Link
3. Find extra work.
Find some part-time work, or find some extra work you can do from home. There are mystery shopping tasks you can do, or you could find some part-time work through the flexible working company RedWigwam. Or, start a side-hustle business. There are so many options now with the internet, all it takes is some dedication and plan.
4. Purchase insurance as an emergency fund
Purchasing insurance as an emergency fund will guarantee that you and your family are protected against all odds. And in your absence or situation that may affect your source of income, like a car accident, your family may carry on with minimal impact on their lives. The aftermath of a car accident can be chaotic, potentially leaving you struggling with costly medical bills depending on where you live, and other severe losses. In such cases, finding an experienced car accident lawyer to negotiate the best compensation for you can be useful.
Insurance isn’t just limited to car insurance (which is obviously a legal obligation in the UK). While building your emergency fund is essential, its also very important to consider things like income protection, personal accident insurance, legal cover, health insurance, and accidental death cover to ensure you don’t end up in financial difficulty, or leave your family having to pick up the pieces. There are many different types of insurance, so it’s essential you do your research to find what’s right for you.
Get started building up your emergency fund now. It’ll give you some much-needed reassurance while you tackle the rest of your finances. If you’re in debt and need some help to get out of it, check out this post on How to Get Out of Debt.
