However, this is easier said than done. In reality, only 59 percent of consumers have #1,000 or more set aside for a rainy day, based on a survey by GoCompare.
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Establish your savings goal
So, the first step in building up an emergency fund is to set up a separate savings account via your online banking. Don’t be worried about getting a good rate of interest at this point — it is more important that your cash is easy to access if you need to dip into it, so keep things simple for now.
Once you’ve built up a rainy-day fund, do not escape from the saving habit. While you might want to present a few more luxuries into your life today you have built up a safety net, it is a great idea to keep the momentum and keep setting money aside. However, you should put this towards paying off debt rather than building in your savings for the time being.
The best laid plans can go wrong, and you might very well be hit with an emergency expense before you have saved up enough cash to cover it.
Now that you have got a goal to aim for, it is time to begin saving.
Alongside repaying your debts, it is also a good idea to spend a bit of your monthly income on getting all your devices insured in case you have not already. This will help protect you from some big expenses down the line if a telephone or laptop gets damaged, making it well worth the expense once you’ve built up your rainy-day finance.
This might indicate tightening your belt a bit for a month or two and cutting back on life’s luxuries, but you’ll be thankful you did when the washing machine breaks and you’ve got enough in the bank to replace it. Of course, this is easier said than done: if you can not see how you can decrease your expenses any more, take a look at our guide to living on half your salary for some top tips.
Everyone has to take care of unexpected expenses every now and then. If you stick to the tips outlined here, you will have a intelligent strategy for dealing with any bills that hit you out the blue.
What’s left is the expendable income: the money you’ve got left once you’ve covered the basics like food, shelter, and transportation. If you are starting from nothing, you’d be well advised to devote as much of this cash to your emergency fund as possible.
Your goal should be to build up six months’ worth of expenses in your emergency account. If worst comes to worst and you lose your job, this will be enough to support you for half a year, providing you financial peace of mind.
It might take you some time to reach this goal, but it is well worth it at the end, so keep at it when times get tough!
Once you’ve run the numbers and worked out the maximum you’re able to devote to your savings account each month, set up a standing order through your online banking. Make sure the money leaves your account the day after payday so that it’s separated from your spending money as soon as possible.
Things to do once you’ve hit your savings goal
The average UK household currently has a record #12,887 of debt before mortgages are even taken into consideration, based on a report in the TUC. Interest rates on savings are so low these days that you are almost always better paying off debt than putting your money into a savings account, so it is a very intelligent move to begin whittling away at your present debts once you’ve saved up six months’ worth of expenses.
If you’re among the many Britons who doesn’t have a safety net to fall back on when times get tough, we have brought together these top tips for covering life’s unexpected expenses. Keep reading to discover exactly how to build a rainy-day fund that will help you deal with unforeseen expenses.
To handle life’s little setbacks — and the big ones, too — it is important to have a dedicated fund set aside for emergency expenses.
Set up your emergency fund
Then add up all your essential monthly expenses (do not forget the normal costs that don’t come out as direct debits, like gas and the weekly food shop) and minus this from the total income.
If you leave your savings and your spending money mixed up in a single current account, it is way too easy to eat in the money you’ve set aside for emergencies without even realising it.
Once you’ve got your savings account setup, it is time to sit down and work out how much you can afford to put into it each month.
Fri, 07 Jul 2017 11:51:07 +0000
What if you get hit with a crisis expense before you have built your safety net?
If you’re intent on building up your savings, it is important to skim some money off your monthly paycheque before you even see it and send that directly to a dedicated savings account.
An uncooperative car. A faulty fridge. Life has many twists and turns, and unfortunately for your bank account, some can cost an arm and a leg to put right.
Use what money you’ve saved up to cover what you can, then consider borrowing money from friends or family to make up the rest. Of course, this isn’t an option for everybody. If you need a short-term cash injection to cover the remaining part of the price, consider taking out a cash advance. But, avoid payday loans that require you to repay 1 lump sum next payday, and go for something with a longer-term repayment program, like a cash loan from H&T.