Some of the links in this post are affiliate links. This means that if you click on them and make a purchase I may receive a small amount of money at no additional cost to you.
The day my husband and I fully stocked our emergency fund, it was like a weight had been lifted off our shoulders. Suddenly, we were financially prepared for almost every eventuality that would come our way.
For most of my life, and definitely most of my adult life, I have always had some savings. There has always been security for me in having some money to fall back on. Even seven-year-old me made sure that she always had a fiver in her piggy bank. My very first emergency fund right there.
As I entered adult life and accumulated responsibilities the need for an emergency fund has grown. Marriage, homeownership and a family mean that an emergency fund is no longer a luxury but a necessity to ensure our continued financial stability.
Can’t read now? Pin it for later!
What is an emergency fund?
An emergency fund is a pot of money reserved for dealing with those expensive and unpredictable moments in life. Even though they are hard to foresee to is not impossible to prepare for them.
Why have an emergency fund?
True emergencies include losing your job or long-term sickness. You can’t predict if these events might happen, and if they do, the impact they will have on your life. But having an emergency fund in place can mean that you don’t need to immediately worry about money if it does.
An emergency fund can also prevent you from going into debt, or further debt depending on your circumstances. In this scenario, it can mean that you avoid paying interest payments in the future. Meaning that you can quickly get back on track to meeting your financial goals.
How much should I have in my emergency fund?
Something is better than nothing. However, it is widely agreed that for those at the start of their journey to financial freedom, or those who are looking to pay off debts, that £1000 is a good sized pot.
Once all your debts have been paid off then you should build up an emergency fund of around 3-6 months worth of expenses. This will be determined by your own risk factors. For me, as a teacher whose salary is not the only household income 3 months will probably be enough. Those who work in the private sector might want more, and those who are self-employed might want more again.
What about those other “emergencies”?
There are many other expenses that crop up in our lives that we don’t see coming. Car repairs, washing machine breakdowns, new school uniform for a rapidly growing child. They sneak up on us and leave us feeling unprepared to deal with them.
However, most of these costs are predictable. Cars are well-known for needing repair jobs. Likewise, washing machines aren’t expected to last forever and generally, children grow. And really fast sometimes.
Ideally, for these scenarios, we would have a separate pot of cash. We call this a sinking fund. We take the projected cost of any repairs, replacements or general maintenance and make plans to have this money ready should it be needed.
My husband and I have sinking funds for house maintenance, car repairs, car insurance payments, birthday, Christmas, holidays and probably more stuff that I’ve forgotten. We know that we want to spend money on these things in the future, so we are making plans now.
How do I get an emergency fund?
If you’ve not got any sort of emergency fund then make it your number one priority. You can check out my article on How To Save Money Fast to get you started. But you might want to be even more adventurous.
Look around your home are there any things that you’ve been meaning to sell? Get them on eBay or Gumtree and put any cash you make into your emergency fund.
You could attempt to do some overtime for a few weeks. A couple of extra hours a week will be big steps to getting to that first £1000 and a slice of financial security. Really think hard about any money making ideas and get started on them now.
Think also about frugal living, where could you cut back to find room to contribute more to your emergency fund? If you feel brave, try extreme frugality and watch your emergency fund grow even quicker.
Where do I keep my emergency fund?
The advice on this varies based on who you talk to. But everyone agrees that wherever you put it you’ve got to be able to get your hands back on it at short notice.
The last thing you would want if you’ve lost your job and the bills need paying is to have to wait to access your money. Therefore instant access is a must. Luckily there are lots of options for this.
My recommendation would be to put it in an instant access savings account. Unfortunately, these do not attract the best interest rates but something is better than nothing. Plus, your money is protected up to £85,000.
Goldman Sachs has recently released an account called Marcus with an impressive 1.5% APR. This tops the market but there are plenty of other choices too. Money Saving Expert has a list of the best on the market.
Another option is to look at current accounts as many of these offer outstanding interest rates and by their nature allow for money to pass freely in and out. Nationwide’s FlexDirect offers 5% on up to £2,500 for the first year, and TSB has 5% on balances up to £1,500.
Choosing one of these options will help your emergency fund grow by itself without removing the option to access it in the future.
An emergency fund is a must-have for financial peace of mind. Make it a priority to get one. Keep it safe. And let it be the foundation on which you build your financial happiness.
Disclaimer: Remember the information you read here does not represent advice. Any ideas or suggestions are just that and may not work for you. Read the full disclaimer here.