Tips for Building an Emergency Fund You Can Rely On

An emergency fund can be a vital part of your financial stability. It can help you handle unexpected expenses, preventing you from going into debt or changing your lifestyle due to an unfortunate circumstance.

Building a reliable emergency fund can be a challenge, but the Chartered Financial Planners at Hansford Bell have the right knowledge to support you through this process. In this article, we’ll outline who might benefit from starting an emergency fund and how to do it, and answer some common questions our clients often have about their savings.

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Who Needs an Emergency Fund?

Access to an emergency fund can play a role in your financial stability and wellbeing. It acts as a buffer, preventing you from falling into unnecessary debt in unexpected scenarios. Generally, an emergency fund will be kept in low- or no-risk holdings, as this ensures it will be available regardless of market situations.

As a form of savings, an emergency fund tends to be a valuable asset for anyone looking to ensure comfortable living. However, there are a few categories of people who may have a greater need for one than others. Factors include:

• High income volatility
• Variable monthly expenses
• Undergoing risky business or financial ventures
• Concern about the future

If you relate to any of these factors, then an emergency fund may be a suitable option for you.

A Step-by-Step Guide to Starting an Emergency Fund

Starting an emergency fund can often be easier than you think. By following our simple steps below, you will understand the steps involved in building a reliable emergency fund without heavily impacting your lifestyle. Plus, you will be able to continue reviewing, growing, and utilising the emergency fund as your lifestyle and finances change into the future.

1. Set Your Goal. Determine how much you wish to save. 3+ months of living expenses is ideal.
2. Assess Your Budget. Find places you can cut back to help you save, and identify how much is reasonable.
3. Open a New Account. Having a separate account helps you keep your hands off your emergency fund, while still making it easily accessible. Other options like wallets available through banks like Monzo can also work, but may tie your funds too closely to each other.
4. Save Little and Often. Even £10 a week will quickly add up, without making a large impact on your monthly finances. Try to set up automatic transfers to ensure saving happens without the need for input.
5. Increase When You Can. If you have a particularly good month, you may wish to celebrate by adding a little more to your fund. This will help you meet your goal quicker, and ensure there’s more in your fund for when you need it.
6. Use Your Fund Wisely. Not everything is an emergency that requires “breaking the piggybank”. Your emergency fund is incredibly valuable as a backup resource, so consider whether there are other solutions before tapping into it.
7. Review and Adjust Regularly. Your lifestyle will experience constant minute changes, which may add up to a need for drastic review of your finances and emergency fund. Constantly reviewing your emergency fund and savings plan can help you stay on top as these changes occur, giving you the most security.

Emergency Fund FAQs

When it comes to building your emergency fund, outside of getting started, there are many questions that people often have with regards to their money. You are not alone, and here we’ll answer some of the most common questions we see:

How much should I have in my emergency fund?

The amount you have in your emergency fund depends on your expenses and lifestyle. It is recommended to have enough in your emergency fund to cover at least 3 months of living expenses like rent, utilities, food, transport, and other bills. This will allow a buffer in case life circumstances put you out of work.

It can be hard to build up a sizeable emergency fund, and investing too much may provide other challenges like lifestyle changes or difficulties growing your wealth. Try to balance the amount you save, saving little and often over a long time.

Where should I keep my emergency fund?

An instant access savings account is one of the most popular choices for emergency funds, as this gives immediate access when needed. Popular savings models like ISAs aren’t as desirable, as they can have rules about withdrawal that make it harder to access money.

Another choice can be premium bonds, which provide a secure way to invest money up to £50,000 with low returns, but no taxes. To make the right choice for your finances, contact an expert today.

How can I boost my emergency savings quickly?

Sometimes, you may find that recent events have eaten into your savings, or speculation has caused you to reconsider how much you need to have saved. Boosting your emergency savings quickly can be a challenge, as they are something that is generally built up over time, but there are a few options available to you that might be beneficial depending on your specific circumstances. These include:

• Releasing equity
• Accessing your pensions
• Adjusting your savings ratio (i.e. spending less of your income, and putting more into savings)
• Selling stocks and shares

How can I make saving for emergencies a habit?

One of the best ways for making saving into a habit is to save little and often. By keeping a regular schedule for saving, it can become part of your routine, and saving a little bit at a time ensures you don’t have to make drastic changes to your lifestyle.

Another option could be to set savings goals. This could be the amount you input per month, or your overall target for the emergency fund. Examples include a 70/30 split between money you use for yourself and money you put into savings, or static monthly amounts to build towards a specified target total.

In any case, finding the right savings structure that works for you can help you build towards your emergency fund savings goals.