emergency fund

The Emergency Fund – Your Personal Emergency Service!

In this post, I want to highlight the EMERGENCY FUND. The fund that is ready and waiting to help you “just in case” – a bit like the NHS, but much less overworked!

This was one of my favourite savings milestones, because it was the first one I achieved, and therefore is the one I am proudest of.

What is An Emergency Fund Anyway?

So what? You might be thinking – you saved a bit of money. Big deal. I’ll go back to Facebook thanks……Wait! No. no, no – this is so much more. This kind of saving is special in its own way.

This was the first time I had ever saved money that I left alone for the purpose of using ONLY in emergencies and NOTHING ELSE. That means I had to leave excess money in my account, untouched. If you’re a serial spend-a-holic (like I was) then you KNOW how hard that is!!

Trust me though, if I can do it, so can you.

In order to successfully pay down debt, I first needed to stop spending on “unexpected events” on my credit card, or my monthly salary. Unexpected events would wipe out my salary, and then I would need a credit card to get me through the month for basics like food shopping.

You Are Not Alone

Before putting together an emergency fund, I had only ever saved for big things, like a deposit on my flat for example. I had never just left money in an account for emergencies. It turns out, I’m not alone. According to the UK financial capability strategy, 21 million UK adults don’t have even £500 in an emergency fund for unexpected events such as the fridge breaking down for example.

Do you?

If you have, then well done! Keep reading though, because you need to check if you also have part two of the emergency fund.

I won’t lie, it took a HUGE shift in my mindset to be able to pull this together. It also took HUGE will-power to leave the money alone. Now I have an established fund of £1000, this is not going to be touched unless I absolutely have to. I am very protective of it! My salary is paying my day-to-day expenses, and I don’t need to use this fund at all – “touch-wood”.

It has already saved me a few times – like when I needed to pay for repairs on my flat due to a water leak into my downstairs neighbour’s bathroom. It also bailed me out when I needed my car fixed so I could still go to work! Think of the money as your personal ambulance service, ready to spring into action when you need it (and not the NHS over-worked kind!).

I Hate Pay-Day Loans

The “quick and easy”, pay-day loan culture really pisses me off. Pay-day loans are extremely expensive, and only temporarily fixes a problem that WOULDN’T be needed if everyone had at least £500-£1000 in an emergency fund ready to go!

So this is your first challenge – EVEN IF you are paying down debt, make it your mission to divert some money to creating your very own emergency fund. Put it into a separate account you can’t touch if you have to. I use a savings app call PLUM – it automatically takes money out of your account for savings – but only if it “reads” that you can afford it. The amounts vary from £5-£50. It all depends on what you can afford, and it never puts you into debt. I use mine to save for holidays instead of an emergency fund, but it doesn’t matter what you need the money for, its all the same concept.

Its totally safe, and if you find saving difficult, its an absolutely gem of a tool. Take a look here.

The Emergency Fund Part 2

The next step for me is now to build up the second part of my emergency fund – my 3-9 months of salary buffer.

If the worst should happen, and you lost your job, or you became ill and needed to cover your expenses while you recovered, how would you manage? The number of patients I deal with everyday who are in a situation where they can’t work through illness, and as a result have financial worries on top of their health worries is saddening and worrying.

In fact, 27 million adults in the UK don’t have any savings to be able to deal with these eventualities, and I know the picture is similar in other developed countries around the world. Your workplace may only pay out for 1 month of sickness, but then what do you do? If you’re self-employed then this is even more critical. And mums – how quickly did you have to return to work because you didn’t have the money saved to be able to continue your maternity leave for the length you would have liked?

Why You Need This

This is where my goal focus is at the moment. EVEN though I’m also paying off debt, I am putting some money into this fund. I know this completely goes against conventional wisdom, but trust me, when you see that buffer money growing it will do the following:

  1. Make you feel really supported, because you know you have money ready “just in case” and you’ll be far less likely to use credit cards and loans.
  2. Make you feel proud of yourself that you have saved this money and not spent it on random rubbish. Sending you a virtual high-five right now!
  3. Be much more motivated to pay off debt – think how much faster you’ll save once ALL your debt it gone.
  4. It will speed up your plans – by not having to wait until your debt is paid, you will have steady progress towards both, AND savings ready to use once all the debt is gone! Could you imagine how annoying it would be to takes ages paying down debt, to only then take ages to save money. Boring!
  5. You will get into the habit of saving, so when the debt is paid, you will have developed a new habit that will stand you in good stead for the rest of your life!
  6. Get you used to spending less money. Once everything is paid off or saved up, that excess money can now fully go to INVESTING, so you can start to get your money growing ready for retirement.

In Summary

Ideally, 5-10% of your monthly income should be put into this savings fund until you get to a level you feel comfortable with (3-9 months is about right). You might need to do some shifting around of your outgoings (and dare I say it, sacrifice a few lattes!)

It doesn’t have to be a multiple of your monthly salary either. All you need to be able to do is cover the cost of the roof over your head, the food on the table, basic bills and your method of transport so you’re not completely stuck. That is literally it. This money is not for luxuries, school fees or clothes. If you want to be able to cover these things too, then guess what – more money will need to be saved!

Bottom line: If you manage to have a savings buffer to cover you and your family for 3-9 months, you’ll be doing better than 27 million UK adults, and that’s a fact.

Thank you for getting all the way to the end! I’d love to know your thoughts on this. I’m on Facebook, Twitter, Pinterest and Instagram. You can also comment below or sign up to my doctor’s weekly prescription by filling out the form under this post.

Lets get financially savvy!

Love as always,