How Much Do You Need in an Emergency Fund?
When I shared how much the average Brit should have in their emergency fund my Instagram followers were pretty shocked.
For the most part, they said they didn’t have anything close to that much.
So what should be in your emergency fund? And do you actually need one? Let’s take a look at the figures.
What should be in your emergency fund?
Your emergency fund should be at least three months of your monthly essential outgoings.
Some experts say the ideal amount is six months, because this provides you a decent safety net for a variety of potential pitfalls.
That includes redundancy, an inability to work due to illness or sudden change is circumstances such as one partner going on maternity leave.
Your emergency savings is different to other savings pots – it’s ring-fenced for a rainy day rather than expenses you can see coming, such as buying a new home, Christmas and holidays.
Based on the average household expenditure, from ONS data, the average emergency fund should ideally contain over £11,000. That’s a sizeable chunk of funds for a lot of people.
Emergency fund calculator
Need help figuring out how much experts recommend you have set aside for emergencies as a minimum? Use my handy calculator to figure it out.
What’s the emergency fund for?
Your emergency fund covers the stuff you genuinely cannot live without.
It includes these things:
- Mortgage/rent
- Utilities bills – gas, water, electricity
- Food
- Clothes – essentials only such as school uniform
- Household maintenance
- Travel for work/school
- Car payments
- Debt
Your emergency fund wouldn’t cover the stuff you normally put your disposable income towards, such as:
- Holidays
- Clothes
- Nights out
- Day trips
- Beauty products and treatments
How to build your emergency fund
There have been many instances over the years where my emergency fund has been a total lifesaver.
That includes when my car has needed an unexpected repair costing several hundred pounds, and when I was made redundant just after coming off maternity leave.
That last one was particularly nerve-wracking as although I got a redundancy payment, there were very few job opportunities locally that were like what I had been doing.
I needed time to regroup and retrain to do something else entirely, so having some money set aside helped cushion that stress.
Do not panic
The number one tip is not to panic. If you have nothing in the bank then you are not alone.
A study by the FCA found 30% of people in the UK have no savings at all. Meanwhile one in three people have less than £1,000 set aside.
So while three months of expenditure is an ideal amount, if you have more than £1,000 set aside then you’re doing better than a lot of your fellow countrymen.
Check out this table with the average savings by age.
| Age | Amount saved |
|---|---|
| Under 25 | £2,533 |
| 25-34 | £4,775 |
| 35-44 | £6,751 |
| 45-54 | £14,591 |
| Above 55 | £35,607 |
Work out what is affordable
Rome wasn’t built in a day and neither will your savings pot be full in just a month.
Work out what you can afford to set aside every month and then calculate how long it will take you to reach the goal.
Slow and steady wins the race, so take it one month at a time.
Savings challenges and no spend months can help you to reach your goal.
Set it on autopilot
Once you have figured out what you can afford to save, you may find it easier to stick with that regular amount by setting a a direct debit to your savings.
There are savings apps such as Plum that will do this for you. I always try to keep an eye out for the best savings rate account, which of course changes regularly. But it’s good to know your money is gaining a decent rate.
Remember something is better than nothing
Even a small pot is better than nothing at all. Don’t be disheartened if you are struggling to reach the goal of three months’ worth of expenses.
Even a few hundred pounds is going to be useful if you do have a sudden drop in income.
Try a no spend month
A no spend month is a great savings challenge to kickstart building up a fund.
This involves cutting down your spending to essentials only for one month and avoiding all the usual moneytraps you spend your disposable income on.
Difference between emergency and sinking funds
You may have heard about sinking funds and wondering if this is the same as an emergency fund. The two are actually very different savings pots.
Your emergency fund is for emergencies only – stuff that you cannot foresee such as a boiler breaking down and needing replacing or a loss of income.
A sinking fund is for the things you know are coming. That includes your annual insurance bill, your annual holiday, Christmas gifts and birthday party expenses.
Final thoughts
Now that you have some ideas for how to get started with your emergency fund why not check out these frugal living tips and my ways to make money for Christmas.
