Our experts recommend that everyone has an emergency fund in place before they start working towards their long-term financial goals. Hopefully, you’ll rarely need to use it! Learn about emergency funds and how to build one.

 

What is an emergency fund?

An emergency fund is a dedicated savings pot designed to cover unexpected expenses or financial shocks. Common uses can include changes to your income like redundancy, unexpected medical bills or urgent home repairs, and other unforeseen changes.

 

Why you need an emergency fund

Consider your emergency fund your financial safety blanket. It provides a crucial buffer against life’s uncertainties, ensuring you’re prepared for unexpected costs. Having an emergency fund reduces stress and prevents you from resorting to high-interest debt, like loans or credit cards. It’s about proactive financial preparedness.

 

How much should you save as an emergency fund?

A good rule of thumb is to save between three to six months’ worth of essential living expenses. This includes necessities like rent or mortgage, utilities, groceries, and transportation. For example, if your monthly essential expenses are £1,000, aim for an emergency fund of £3,000 to £6,000. The more you save, the more financially resilient you’ll be.

 

Where to keep your emergency fund

When choosing the right account to save your emergency fund in, accessibility is key. You should keep your emergency fund in an easy-access cash savings account that lets you withdraw your money quickly and easily if you need it.

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Tips to build your emergency fund

  1. Set a clear goal – Determine the total amount you need based on your monthly essential expenses. Break it down into manageable weekly or monthly savings targets.
  2. Start small and build gradually – Begin by aiming for three months’ worth of expenses, then work towards 6 months. Consistency is key.
  3. Regularly review and adjust – Life changes, and so do your expenses. Review your emergency fund regularly and adjust it as needed. Also, if you’ve had to dip into your emergency fund, remember to top it back up again.
  4. Automate your emergency savings – You could set up automatic transfers to your emergency fund to consistently build your savings without actively thinking about it. With Moneybox, you can set up a weekly deposit or payday boost!

Once you’ve established a solid emergency fund, you can confidently explore growing your wealth further. Let’s move onto Step 3 – Grow your money.