Are Emergency Funds Actually Helpful?
Whether you have any debt or not, people will constantly tell you that you should have an emergency fund, just in case anything goes wrong. And, they are completely right. Emergency funds can be very helpful as you never know what is going to happen, especially during the pandemic at the moment. But, unfortunately, studies from Finder.com show that 1 in 10 Brits have no savings at all. So, how can you change that and why should you?
What is an emergency fund?
An emergency fund is a sum of money which is saved up on the side of your normal bank account. It is used in emergency situations which you may unexpectedly find yourself in. Typically, people would regularly build up the amount to ensure that if anything ever happened, they would have enough to manage. Some people suggest saving enough to be able to live off for a few months. Or even pay for any essentials which you cannot afford at that time, instead of getting a loan.
How much should you save?
When creating an emergency fund, you do not want to put all of your money into it leaving you with hardly anything to live off. You should gradually build it up. To do this, you should be inputting money every time you can. This could be every week or every month, whatever works for you. Usually, we suggest that you should save enough money to cover anything which life throws at you.
An example is if you lose your job, you should have enough money to live off for a couple of months until you find a new one. So, it depends on your living standards and life choices. If you are somebody who has a lot of essential bills and outgoings every month you will have to save more than somebody who has non. Therefore, it is whatever you feel comfortable with having.
Do you need a budget?
When dealing with bills, debts or just any type of income or outgoings we suggest you should have a budget. A budget will help you control your finances in the best, easiest way possible. This way, you will be able to have a set amount of money designated to different categories each month so you know you will not run short of money. It will also allow you to steadily build up your emergency fund and allow you to set a goal of how much you want to save.
How do emergency funds help?
Emergency funds could be needed at any time, mainly when you least expect it. They could be needed for small issues like a vet bill, or larger things like a boiler repair. You just never know what is going to happen or when it will happen. So, if you have some money safely stored away for events like this, you know you will not have any type of financial issue.
What should you do if you have an emergency but no emergency fund?
Whether you do not have an emergency fund or you are just starting up, if you find yourself in an emergency situation, you probably will not be able to afford it. So, what can you do? As a lender, we advise you to try everything you can before applying for a loan. For example, borrowing from family or friends or using other savings. if these options are not possible, then applying for a loan could be your next option. For more information visit the Money Advice Service.