Emergency Funds – How Much Is Enough?

It is important to consider creating an emergency fund for big, unexpected expenses like replacing your car or covering the rent between jobs.  

Where rainy day funds are ideal to cover small costs, like replacing a mobile phone or buying a wedding gift, emergency funds are for the serious emergencies. If you can, having money set aside in an easy-access savings account rather than relying on applying for credit during financial difficulty will benefit you. 

A few months of expenses 

A good rule of thumb to give yourself a solid financial cushion is to have 3 months’ essential outgoings available in an instant access savings account. So, if you lose your job, for example, it’ll help buy you 3 months to find a new one. 

This requires taking a look at your typical month: totalling how much you need for the mortgage or rent, food, heating bills, and other things you can’t live without.  

This might look like a huge figure but remember that any amount saved up now will help you if you have to pay for something you weren’t expecting. 

How to build up your fund 

As with all savings plans, it’s best to keep to what you can afford to save and to save regularly.

If money’s short, start small. For example, saving just £3 a day adds up to £1,095 over a year. By getting into the savings habit, you’re making progress, and small sums quickly add up.  

If this isn’t possible, save what you can as regularly as you can. Every bit makes a big difference! 

Top Tip! Just like you would save for a wedding or a new car, work out how much you need to put aside, and set up a savings standing order or Direct Debit for the right amount. 

If you have debts, you should also decide whether it’s better to pay them off first or to simultaneously save and pay them back.  Read our Should You Save Or Pay Off Debts First? 

Generally speaking, if you have expensive debts such as:

• credit card debt 
• unauthorised overdraft 
• Pay-day loans 
• or arrears on your mortgage repayments 

it would be cheaper in the long run to pay these off first.