Have you ever considered what you would do if you had a financial crisis or an emergency?
Setting aside money in case of an emergency will be beneficial in the long-term, as it allows you to be prepared for any unexpected life events. This may include a car repair, overdue rent or credit card payments. It can also provide you with a safety net in case of personal circumstances such as losing your job.
Your emergency savings, should cover your main expenses for at least 3 months. Here’s an example of what those expenses could be:
It is very important to make sure this expense is covered, as you do not want to incur a larger problem where you have missed repayments on your property. You should also put money aside for your house repairs, in case your fridge breaks or you need to replace an appliance.
We all need use of water, gas and electricity. By putting money aside for these bills, you’ve covered your back. Utility bills can add up; make sure you’re aware of when payments are due so you can pay them on time. To save money, consider switching providers and get yourself the best deals possible. In this way you’ll avoid paying more than you need to.
If you’re able to work out how much money you spend on food a month or weekly, you can begin to make cutbacks. Look for offers and avoid buying food outside of your weekly shopping. MySupermarket is the perfect one-stop shop to compare prices across grocery stores online and in-store; accessible online or through the app. Spending on impulse every once in a while is not going to cause any problems, however you should set rules on how you spend money. The Topcashback app also provides ways to get cashback for purchasing certain food or household items. Additionally, joining the loyalty schemes of your local supermarkets is a great way to get those savings in the long run.
Your emergency savings should also cover your travel. This may be petrol for your car, or your monthly rail ticket. If you own a vehicle it comes at a cost. Ensure you have money set aside to cover insurance payments, repairs or road tax.
If you know you need to pay off your overdraft or credit card bill, make sure that this money has been set aside. It’s imperative that you don’t accumulate too much debt, as this can cause issues for your credit score. Work on ways to get out of debt and not into more debt. Avoid financial charges, and allocate money for repayments.
Consider whether you have any personal expenses, such as toiletries or clothes as these will be additional costs. Based on your salary, you will need to work out what percentage you will allocate for the emergency fund. This will help you set boundaries on how much money is being set aside.
The next step after this will involve setting up a standing order, which automatically transfers the amount to a designated account. Most online banking will have this feature available to set up to make it easier for you. Having a standing order can ensure strong growth of your emergency fund over time. Before you know it, your emergency fund will provide you with enough leverage to manage your finances.
An emergency fund isn’t something you should worry about. Even if you’re depositing at least £20 a month, over the course of a year you’ll save £240. Focus on changing your mindset. This way you can rely on yourself if circumstances take a different turn.
Take control of your money management and introduce emergency savings to your financial plan.
This post was written by Melisa