Life has a habit of catching you unaware sometimes. Let’s face it; anything can happen - an accident, a flood, a car breakdown - and nothing can prepare you for the emotional impact of it. However, you can plan to protect yourself from the financial implications of these disasters, big or small, that seem to crop up all the time. The solution is to build a pot of money to deal with these emergencies - called an emergency fund.
The trouble is, few Brits ever manage to do it. In fact, the vast majority of UK citizens have less than £1,000 squirreled away in savings, let alone any money put away for disasters. And four in ten UK adults have less than £500 available to them. But, according to financial experts, a safe emergency fund should be somewhere close to the value of six months worth of bills.
Be honest: do any of you have that put away for a rainy - or should I say, floody - day? If not, then perhaps it’s time to do something about it. I’ve put together some ideas that will help you get started and hopefully, should give you that financial safety buffer every household needs. Take a look and let me know what you think!
Lower your bills
If you need to save money to the value of half a year’s worth of bills, it makes sense to start by reducing those bills, right? A TV subscription here, a mobile phone bill there - these little things add up to a lot of money over a year. So, start being more proactive with keeping your costs down. Ask yourself if they are necessary, or if it would really impact your life if you trimmed them down?
Look at your gas and electric bills, too, and consider switching to cheaper suppliers. It's easy to compare energy prices these days, for example - there are dozens of excellent tools out there on the web. And if you have never used them before, you might be surprised at how much you can save on your energy bills. I've heard reports of people saving close to £400 a year. It’s also £200 less that you need to save for your emergency fund if you want that six months coverage.
At a rough estimate, researchers think that around 10% of a household’s income is wasted every month. This is big money we are talking here! Let’s assume you have a home income of £2,000 - you are statistically likely to be wasting £200 of that every four weeks or so. Just think how much money you could contribute to your emergency fund by plugging all those gaps and redirecting the money. Consider the fact that you don’t notice lost money because it is already gone - saving it instead will not cause you any hardship at all. To top it all off, you will have a decent lump sum in your emergency fund after six months or so.
So, the big question is, what can you cut back when it comes to waste? There are plenty of things you can kick into touch. A gym membership that you never use, perhaps, or a night out every week that you don’t need. Maybe you can walk instead of getting a cab, or save car fuel by riding a bike. Another big culprit that you can target is food waste. As a nation, we throw away an unbelievable amount of food every month - and it’s all money we are wasting.
Once you have worked out what you can save every month, it’s time to get tough. Set up a direct debit from your main account into a separate savings account, and make sure that it goes out, every month, on the same day. It’s important to get that automatic payment going, as it will force your hand and stop you from spending - and wasting.
Honestly, you will be surprised at how quickly you will build up an emergency fund, and even after a couple of months, it will be a healthy amount of money that could help you out of a fix.
The impact saving will have on your wider finances will be significant, too. You've proven it's possible to save a lot of money without impacting on your life a huge amount - but just think what you could do if you tried?
OK, so that’s my advice on creating an emergency fund for your family. Do you have any tips - why not let everyone know about them by leaving a comment?