Let’s face, for many of us setting an emergency fund up is often an after-thought. It grabs our attention after the normal expenses are paid for like rent, utilities, travel and groceries. We get caught out when there is a financial emergency, like an expensive car repair bill or the boiler packs in. According to Finder, the average Brit has under £7,000 in savings and around 40% of Brits do not have a month’s worth of income set aside for these unexpected situations. In this article, leading UK bloggers and I have researched some top tips that will help you to start an emergency fund online in the UK.
Establish the correct emergency fund amount
It is key for you to accurately determine the amount of emergency money you need to set aside each month. You should ask yourself how much do you need to save up? It is beneficial to action the following points:
- Calculate your fixed expenses
- Add miscellaneous purchases
- Choose the amount you are happy to put away each month.
Once you have these elements recorded, you can start to see a pattern in your monthly spending. Aim to cut out unnecessary purchases such as takeaway coffees on the way to work, eating out, and snacks. Over time, these purchases add up and start to eat into the money that you could move into your savings instead. Marie from Broke girl in the city blog recommends “to create a new lifestyle as your new normal”. Avoid non-essential items like too much alcohol, calorific takeaways and needless Amazon treats.
What is the minimum recommended threshold for an emergency fund?
Various research says at least three month’s salary should be the baseline for your emergency fund. But this does not mean you need to stop putting aside savings after three months. The more you put in, the more prepared you are for a rainy day. How much of an emergency fund you should have will differ depending on the individual or household. The more people in a family, the more sense it makes to set money aside, in line with what you can afford.
Sarah from DebtCamel highlights “The fund not for Christmas or getting your car through its MOT – you know those expenses are coming up and need to budget for them as well as put money aside into an emergency fund”
Open up a separate savings account for emergencies
Once you know the amount you can regularly leave aside, you need to separate your current account from your savings. Practically speaking, you should use your current account for regular outgoings like expenses and groceries. By leaving your savings in your current account, it is difficult to separate your bills from your emergency savings.
It is also very tempting to dip into your savings and drive them towards other causes, such as gratuitous spending. Opening a savings account will help you set a boundary and make the savings fund more official. Blogger Dan from Financial Wilderness makes a good point “It’s absolutely a good idea to have that money in the best interest account possible, but do please make sure it’s an easy access account” otherwise you can’t access the emergency fund in an emergency.
Automatically grow your emergency fund
Why not decide on a figure that is easily attainable and set up an automatic debit? It saves you time and is satisfying to see it grow with minimum effort. Try not to interrupt or stop the direct debit, and this should be easy to maintain. Saving regular amounts is far more beneficial over time than putting money away on an irregular basis. Once you get into the flow, saving becomes second nature and not an action that requires extensive planning.
What if I can’t afford to save for an emergency?
A common issue for low-income households and individuals is that the budget is too tight. It doesn’t allow for extra money to be set aside into the emergency fund. Many minimum wage earners live paycheck to paycheck and have a minimal amount to afford to put away. It can be frustrating and leave you feeling in a rut and unable to escape the catch-22. Nevertheless, saving even when in a tight financial spot is possible. Emma from Sunshine in the Rain “didn’t have enough left at the end of the month for large savings so instead transferred pennies and pounds when she could”.
Blogger Steph from Funding her freedom recommends “side hustles to top up your savings if your 9-5 can’t quite stretch to it, and to always contribute to your Emergency Fund on payday, rather than at the end of the month”. Side hustles could include hosting an Airbnb Experience, renting out some spare space with Stashbee or even tutoring online. Ruth at the blog Money Savvy Mum Uk found “Side hustles helped to make more money to throw at the fund helped”.
The 1p Saving Challenge
Taking part in the 1p Saving Challenge introduced by Skint Dad is a good way to save money. The premise is to put aside a penny on day one, two pence on day two, and so on. The pennies accumulate in this manner daily for a year. If done stringently, you can save just under £700 in a year for your emergency fund! It is incredible when you think about how little impact it has on your day to day spending. The expression every penny counts rings true!
Hopefully, this article has given you some good ideas on how to start an emergency fund. If you want to delve deeper into saving money, check out the top 20 “how-to” save money tips in 2020 from UK money Bloggers article.
If you are keen on decreasing your expenses on your Broadband or Mobile Phone contract, check out our comparison sites for Broadband and Mobile in the UK and find out how to save money. For any other emergency fund tips, please share.
With all of the spare time I have had during this whole lockdown/ pandemic, I have found taking online surveys a pretty cool way to earn some extra money. I typically earn about £90 a month from them and this goes straight into building my emergency fund!
Not really time consuming either having to wait around checking/ refreshing as you can install an extension onto chrome and as soon as a survey comes in you get a notification!