Month: July 2016

The No 1 Reason That You Need An Emergency Fund

You have a goal that you want to reach, and you’ve started saving money for that goal.

But an emergency pops up.

You can’t afford it – so need to take out some credit to help cover it, and there’s more debt piling up.

Then something else happens. But there’s no savings left – and more debt needs to be taken out to cover it.

Unfortunately, it’s an all too common problem, and if you are following anyone who is a on a debt payoff journey, you may have seen this happen, or had it happen first hand.

It doesn’t need to be this way though.

Here’s the deal:

We can prepare for emergencies. We can have money in the bank ready to cover us for things that crop up that knock us sideways, and pay it without causing any stress.

That’s the goal, right? Less stress.

I don’t know about you, but I hate the feeling of panic, where you know that you can’t afford to pay for the thing that has broken (for example) and you know that you have to pay it, and potentially get into some debt because of it.

I’ve been there – where I had £0 spare cash, and if something came up, I couldn’t pay for it. This wasn’t always emergencies either – if my friends invited me out for a meal, I didn’t have the money to go. It was a really, really difficult time for me.

Now, you’ll be pleased to know that I am in a much better place. I live with my boyfriend and my daughter, and we are in the process of buying a house.

We have spare income, we work hard, and we are secure in the knowledge that we can afford any emergencies that crop up.

The difference in my mental health with financial peace is HUGE – and I want that for you too.

Wondering where to start? Head on over to the Free Resource Library to download the checklist below. It’s for your 52 week money challenge!

Emergency Fund Checklist

Create A Good Budget

Firstly, you need to create a budget. You won’t know how much spare you have each month, without doing a budget first.

Write out all of your income, and then all of your expenses – both fixed and variable. Head on over to your internet banking and bank statements to see how much you have going out each month.

To sum it up, a budget is simply income – expenses = £?

The amount of money that you have left each month will be what you can use for your goals, such as building your emergency fund in this case.

Once you know how much money you have left spare each month, you need to give that money a job. The job can be whatever you want, but it’s a good idea to work to a Zero Sum budget – where you are essentially left with £0 in your account because it all has a job.

That doesn’t mean to leave yourself with no money, but to put your spare money towards things, so that it’s not used for random spur of the moment purchases.

You can use the ‘spare’ money left over bills for things like:

  • Savings
  • Emergency fund
  • Paying off debt
  • Fun money/entertainment

The point is, to make sure that you are allocating yourself money for savings – you could treat your savings like a bill and get it automatically coming out of your account if that works best for you.

Budget Planner Monthly Budget

How Much Money Should You Have In An Emergency Fund?

This is a personal decision – I’ve seen some people with £100, I’ve seen people with £10,000 or more – it comes down to personal preference and how much money you need to live on.

Emergencies are something that we know will happen – but the kind of emergency, and how much it is…will vary massively from person to person.

Say you lose your job. Would you be ok financially?

If not, it’s good practice to have enough money in your emergency fund to cover you if you were to lose your job.

Even if you were to find another job straight away, most jobs will wait until the following month to pay you, which may mean going without pay for a month or two.

Ideally, you will save 3-6 months of living expenses, so that you are covered in case you lose your job or something equally as big comes up.

How Do I Build An Emergency Fund?

Reduce expenses

As you’ve created a budget now, you can look at the expenses and run through them, to see which you can reduce.

An example of a good place to start is with your electricity/gas supplier. With these utilities, you are usually just paying for the same service, but potentially a lot more than you could be paying with someone else.

Head on over to a cashback site such as Quidco or Top Cashback, and go through them to the price comparison sites – the reason for this is that you will get some extra money back from this, so it’s a win-win.

Work through the whole list of your expenses, and see what you can reduce.

If you think that you are paying too much for your groceries, the best thing that you can do is a proper meal plan each week, because then you are only buying the food that you actually need, and none of it will go to waste.

Increase income

I’m a massive fan of increasing income, because when I started to look for ways to increase my income, my life did a complete flip. I had been struggling so much, but fast forward to now – I am doing so well.

If you are wondering how on earth you are meant to earn extra money when you already have a crazy busy life, you’re in the right place.

I started earning extra money in a crazy time of my life – I had a toddler who was permanently stuck to my hip, I had an evening job that I did from home when she was in bed (and also during her nap in the daytime), and I was also studying at University part time from home as well. Ahh!

I had told myself that I was too busy, that there would be nothing that I could do around my daughter and everything else, I didn’t have a car at the time either – there were a lot of excuses that I came up with for quite a while, before I took the leap into the world of the side hustle.

Some of my favourite ways of earning extra money that I 100% recommend for you are:

Just know that it is definitely possible for you to earn extra money, and the day that you start will be the day that managing your money becomes much easier for you.

Save The Change

If you aren’t used to saving money, a really good way to start is to save your change. Get yourself a coin jar and when you have change, put it in there.

You may want to try specific challenges with this, such as only putting in £1 or £2 coins.

Ideally, you would usually want to put all of your change into a savings account that you can accrue interest with, but for now, we will go for the start building good financial habits.

What’s a Good Amount To Start With?

A good amount to aim for in the beginning, would be £500 – £1000. This can cover you for things such as car repairs, or the washing machine breaking down.

The amount that you save per month is up to you and your income/expenses, but if you work to the Zero Sum budget process, a good aim to have is to put most of what is left after paying your bills to your emergency fund.

Remember – your emergency fund is for you.

It is for your own peace of mind.

The reason that you are saving an emergency fund is so that when something bad happens, you don’t have the additional stress of worrying about your finances, and suffering a financial setback.

Where Do You Put Your Emergency Fund?

When an emergency strikes, you’re going to want to have the money ready to go. You aren’t going to want to jump through hoops to get access to it, because that kind of defeats the point.

Ideally, you’re going to want to put your emergency fund somewhere that is easy to access when you need it (so not in investments), but not easy to access in general day to day life.

If your emergency fund is linked to your current account and you can see it when you log onto your internet banking, the temptation to move some of it over is too strong.

The best thing to do, is to keep it in a savings account, but one that isn’t linked to your main accounts. Look for one with a good interest rate, so that you can grow your money whilst it’s in there.

What Counts As An Emergency?

Ok, I know I’ve covered this a bit already at the beginning of the post, but I think that this is an important one to discuss.

It’s all too tempting when you have the money there, to use it. There are loads of opportunities that pop up that you could use it for, but the whole point of having an emergency fund is to take the stress out of your life.

An actual emergency, that you can’t really fully prepare for. So a birthday or Christmas does not count as an emergency, as it happens on the same date every year.

Do you have an emergency fund? How much do you have saved, or want to save?

Emergency Fund

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