During the past few months, many households have seen a reduction in their salaries due to the Covid 19 pandemic. Some people have even lost their jobs, and where their Government has not been able to support them, it has been a real crisis for many. Figuring out how to pay bills, rent, and other fees has been a real challenge and one that has led to anxiety, depression and other mental health problems as a result.
This is why it is important to be able to rely on and draw upon an emergency fund. An emergency fund is a savings account that you put some money into each month and can access at any time when there is a real need to do so. For example, this is often used after a real emergency, not just a financial one. If there was a fire (here is some useful guidance for the UK in terms of fires) and belongings are lost or severe damage is done, an emergency fund can help to recover some of this. The money cannot be used for things like holidays or a shopping spree, but for when there is a real need for the cash, such as if you need a boiler replacement at home, a new car because your old one suddenly broke down, or for medical fees. Or indeed, if there is a global pandemic and you need to use the money to support your household payments!
Now, obviously hindsight is a wonderful thing and you may find that this advice is too little, too late. But it is never too late to open an account and set this emergency fund goal. By doing so today, you can take a step to safeguard your future. Who knows what that future holds, and if we find ourselves in a worrying position again, you will at least know that there is a pot of money tucked away for such an instance.
When it comes to starting your emergency fund, Wonga published some great tips to help. They say that you should gradually build up your fund over time, by setting a small and affordable amount aside from your monthly budget into a separate account. This stops you from being tempted to use the money and watching the funds increase over time can also help with your motivation to keep on track with doing this. If you set up a standing order, you make yourself accountable. Wonga also published a free, downloadable file to help you plan your emergency fund and keep you on track.
When it comes to how much should be in your emergency fund, the Balance says that 3 months’ worth of rent and bills is a good place to start. Others may like to aim for 6 months’ worth of money, to give you that extra bit of security. If you do suddenly lose your job, this gives you a good amount of time to be able to survive while searching for another, without the risk to your home or your family. The money will cover your rent or mortgage payments, your utility bills, food bills, car bills and so on. It means that for 3 or 6 months, you are able to survive just fine financially, whatever life has thrown at you.
An emergency fund is a wise idea for any family, however much money they earn or spend in a month. If this pandemic has taught us anything, it is that you can very suddenly find yourself in a different and worrying situation that was not foreseen on the horizon. Setting up an emergency fund can be a really solid way to safeguard yourself and your family in case this kind of thing ever happens again.