One of the worse mistakes I made whilst I was at university was to run out of money. I had a budget for the term and I ran out. Seeing the £0.00 balance in my account was a very scary thing. I had savings in another account, locked away, but I didn’t want to use them. I’d set myself a task of sticking to a budget (which was pretty generous at the time) and I failed. I needed to work out why I’d failed and what to do next term to ensure I didn’t make the same mistake twice.
Moving forward quite a few years, me and my husband have the same set up. We have savings that are in various different accounts, but we’re not to touch them. We pay ourselves first into different accounts, and then pretend that money isn’t actually there. It’s ear-marked for different goals and priorities. However, one of them is now our Emergency Fund.
An Emergency Fund is exactly that – money you can use in an emergency. Whether that’s because your washing machine suddenly doesn’t work, or you break down in your car in the middle of nowhere or you get an unexpected bill; you’re okay because you’ve got an Emergency Fund set up and funded for just this type of emergency. Or, the worse scenario of all where you are made redundant, and end up un-employed for a while. This is where the Emergency Fund money really is vital, to give you time and peace of mind in a particularly stressful situation.
The general rule of thumb is to keep 3-6 months of essential outgoings money in your Emergency Fund. You can work this out to suit your own needs quite easily. Essential outgoings can also vary from person to person, depending on what you think is “essential”. In our Emergency Fund we’ve got 6 months of mortgage payments/council tax/water rates for the moment. We haven’t included things like gas/electric/food in ours at the moment, though this might change in the future. However, we are slowly adding to ours all the time, so that eventually we will have 12 months worth of essential outgoings sat in there, just in case. Now, some might argue that this is too much money to be sat around not doing very much, however the point of an Emergency Fund is that is can be accessed quickly, in an emergency. So, our plan is to continue to drip feed money into our Emergency Fund over time, now that we’ve got it to a satisfactory level for us, for now.
The reason why an Emergency Fund is so important is because it gives you peace of mind. Because you know that if something were to happen, you have the funds readily available so that you can sort whatever the situation is out. If you need to buy a new washing machine, you can. If you need to pay to have your car towed and then fixed you can. If you’re suddenly unemployed, you can manage for a while whilst you find yourself another job or start a new venture for yourself.
In essence, an Emergency Fund gives you the freedom to not have to worry about an emergency. Y0u could even track your progress in your own budget planner! Having that bit of money set aside can really give you peace of mind in case of something going wrong.
Do you agree? Do you have an Emergency Fund? What amount are you aiming for? I’d love to hear about it in the comments!
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I completely agree! We do an EF and we’re working on building it up!
Glad someone else agrees! Good luck with building your EF up 🙂
I don’t know what I would do without an emergency fund other than be in a major panic. Now that we are homeowners, we really need to increase our fund to cover home repairs and such. For example, we definitely need to replace our kitchen appliances in the next 12 months and that is not cheap. However, it is hard to balance building up an emergency fund with paying off student loans.
We’d be in a major panic too without ours if something went round. And I agree – it is hard to balance so that you can meet your aims! Thanks for stopping by 🙂
I definitely think that an EF is a need. I would be extremely stressed out if we did not have one.
I definitely agree that an EF is essential. Otherwise it is too tempting to use a credit card particularly if you are a home or car owner. We are in process of retiring early so we have a few years of essential expenses until we have finalised pension arrangements
I don’t have a cash emergency fund.
Instead, I class my Vanguard Global Tracker as that. I can access it immediately and it grows (mostly,) at a rate higher than it would in say, a cash ISA.
Let’s say you you’re fortunate enough not to have an emergency in 10 years, you’ve lost a load of growth in that EF just because you choose to keep it in a low interest cash account