Preparing for the Unexpected with an Emergency Fund

emergency fund

In the UK, most people have less than £1000 saved for emergencies. But, your emergency fund should be a top priority when it comes to your monthly expenses.

When you’re getting your finances back on track after some hard times, it’s important to prioritise your monthly expenses. Starting an emergency fund is a huge part of protecting your future finances. Whether it’s emergency dental work, a failed MOT or even a redundancy, life can throw out some challenges and you need to be ready.

Ferratum are here to tell you how to future-proof your finances, so if you find yourself in a difficult financial position, you can give yourself some breathing room.

Do I need an emergency fund?

If you’ve ever come face to face with a huge unexpected bill with weeks to go until payday, then yes, you definitely need an emergency fund.

The fact is that your financial situation can change quickly, and it’s not just small emergencies, but the big ones too? How long could you pay the rent or mortgage if you lost your job tomorrow? What if you had an accident and couldn’t work for a while? Would your family manage in the short-term?

You’ll sleep much easier at night if you know you have an emergency fund to cover you in the scariest of financial situations.  

How much should I have in my emergency fund?

Well, how long is a piece of string? Obviously, it’s hard to put a figure on this as it depends massively on your personal circumstances. But, it’s generally agreed that 6 months living expenses is a sensible cushion to aim for.

That might sound like a lot, but the main thing is to get started! Set a realistic target about how much you can afford to put aside and begin straight away.

Start small

Saving for six months’ worth of living expenses might sound like a tall order. And, if it feels unachievable, it can be hard to stick to your goal.

Don’t stress about the final amount at first, start small with your savings. Commit to what you can afford and it will soon start to add up.  

Gaining momentum

Take advantage of the great feeling you get when you reach your goals! If your goal was to save £1000 a year for your emergency fund, you’ll be pleasantly rewarded, not just from the interest on your savings, but from the motivation of achieving your goal.

If you hit your target, try increasing the amount you save by a small amount each month, making you even better prepared.

When you haven’t saved for a rainy day

It’s impossible to prevent untimely emergencies, and if you aren’t yet in the position to manage such an expense on your own, there is help available. Consider a short-term loan if you have an unavoidable financial emergency and no savings. But be sure to make sure you can comfortably afford the repayments.

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Warning: Late repayment can cause you serious money problems. For help, go to moneyadviceservice.org.uk. Representative example: APR 1270% if borrowing £400 for 4 months. Interest rate: 292% p.a. (fixed). Total amount repayable: £665.48 by four instalments of £166.37. Maximum representative APR: 1604% if full loan repaid after 7 days.