It’s always a good idea to prepare for emergency savings by keeping a rainy-day fund aside just in case. The trouble is, it’s hard to determine how much “emergency money” is enough to manage all potential problems. The nature of unexpected events is that they’re unexpected. From a broken washing machine to a boiler exploding, there’s always a risk that something could go drastically wrong.
Here, we’re going to look at the concept of having emergency cost, and why it’s important to split your savings and put the rest of your money to work where you can to ensure that you’re getting the most out of your cash.
Building Up Emergency Savings
When it comes to emergency savings, you want to make sure that you get your fund set up as quickly as possible. Of course, as with anything else involving finance, it’s still important to stick to what you can afford, and make sure that you save back regularly.
Just like you would if you were saving for a new car or a wedding, work out exactly how much you can afford to put aside, and try to set up a standing order for savings in that amount. Once you’ve met your target amount for your emergency fund, you might consider continuing with your regular savings to continue funding future goals, or you might think about investing.
How Much Should You Save?
When it comes to figuring out how much you should save, the amount differs for everyone. In most cases, you’ll want to make sure that you can afford an unexpected repair, but also pay for a few months in a difficult situation. For instance, if you were to split up with your partner or lose your job, you might need some time to get back on your feet, and your emergency fund will help to cover that.
If your money is short, you could find that starting small introduces a lot of extra savings into your life. A good rule of thumb is to have at least enough for three months of essential outgoings available in your savings account. This means that if you spend about £1000 a month, you will need at least £3,000 in your emergency savings.
One important thing to remember is that there is such a thing as having too much money in your savings stash. If you have too much money, for instance, six months or upwards worth of your essential outgoing simply sitting in your bank account, then you could be missing out on a great opportunity to make your money work for you.
If you want to prevent your interest costs from mounting up wherever possible, you could consider using your spare cash to pay off any debts that you might have before you build your emergency fund. For instance, thing about how you can move some of your excess into a savings account that will work harder for you in the long run.
What if I Don’t Have Enough Emergency Cash?
While we can all try our hardest to make sure that we have enough emergency cash in our bank accounts when things go wrong, there’s always a risk that you could be left in the deep end of life without much help at one point or another. For instance, you could find that you encounter a number of emergencies at once that completely dry out your savings and leave you wondering what you’re going to do next when yet another big problem comes your way. The good news is that when you run out of emergency savings you don’t always run out of options.
Ultimately, if you end up with nothing left in your emergency savings account, one of the best things you can consider doing to help pay for emergency bills that show up, is look into taking out a personal loan. A personal loan is an unsecured loan that you can use for anything from vacations, to buying a car, or investing in your wedding. Some people use their personal loans to pay for house expenses when they don’t have any free money available in their savings.
With a personal loan, you can potentially deal with emergencies straight away when you don’t have anything left in your emergency fund, and you can pay back the expenses over time, using the money that you would have otherwise put into your savings account. Of course, it’s important to make sure that if you do consider taking out a personal loan, you think about your options as carefully as possible. Taking out a personal loan isn’t something that should be taken lightly. Although there’s less risk here than with a secured loan, you will need to make all of your repayments on time to avoid some serious repercussions.