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Money Savvy

How to Build an Emergency Fund for Rainy Days

Everyone likes to imagine that they’ll never experience financial trouble. When things are good, it can seem such a distant possibility. That kind of thing only happens to the reckless and careless, right? No. If there’s one thing that life teaches us, it’s that the plans we make don’t always go to plan.

The majority of us will experience some sort of unforeseen financial shock in our lifetime - some more difficult than others. And whilst an empty bank account can be troubling, it’s important to know how to deal with it when it happens.

Here’s how to plan an emergency fund for unexpected financial shocks and rainy days, and how much you should aim to save for a successful budget:


15th December 2021

How much should an emergency fund be?

This is entirely up to you. You may want enough money to pay for an unexpected repair, but you also want enough money to get you through an unprecedented sticky situation. With this in mind, most experts recommend that an emergency fund should equate to 3 to 6 months’ worth of basic living costs.

For example, if you suddenly lose your job and have no other form of income coming in, you’ll have a period of breathing space where money won’t be an immediate worry.

With this amount always instantly accessible in a savings account (hint: don’t make it hard to access), you’ll be able to cover any unanticipated costs, along with buying you time to figure things out.

So, if your monthly outgoings (rent/mortgage/food, bills, etc) add up to £1,000, an emergency savings account of £3,000 is ideal. The 4 tips below will help you set up a successful fund:

1. Give yourself a target date for starting your fund

It’s never too early (or late) to start an emergency fund, but it can help to set yourself a date of when you want to begin saving - this date will help you reach your goal faster. Naturally, the sooner the better, but depending on your financial situation, you may need a little more time to put things into place.

Reserve one evening to look at your finances and map out how much you’ll need to spend in the coming months. Do you have upcoming plans or trips that are going to require an extra bit of spending? Are there areas in your life you need to start cost-cutting in order to start the saving process quicker?

When you notice a realistic gap in the calendar that looks to be a pretty cheap month, put a big red cross on the date and set this as your target.

2. Decide how much you can afford to save per month

How much you decide to or can afford to save per month is up to you. However, be sure to factor in your future plans when drawing up your emergency fund arrangements.

Most financial experts recommend saving 20% of your income each month, as this is typically an affordable amount for most Brits. This amount of savings is based on the 50-30-20 budgeting method - an approach that proposes an individual spends 50% of their income on essentials, leaves 30% for disposal purposes and saves 20% for the emergency pot.

So, if you bring home £1400 after-tax, you can spend £700 on living expenses, set aside a £420 social life budget, and slot the rest (£280) in your rainy-day bank account. Simple.

3. Set up a direct debit each month

Once you know how much you can afford to put away each month, it’s a good idea to set up a direct debit. This ensures that the same amount goes into your emergency fund each time, you can constantly keep track of how much you have, and most importantly, deters you from spending it or skipping a month of payments.

Direct debits have many other benefits, including saving you money, time, and organising your finances in a way that helps you structure your life.

4. Cut unnecessary costs

Everyone is guilty of trivial spending when the mood takes you. From morning coffees on the way to the office to ready meals on the way home from work, there are so many small unnecessary costs that add up month by month - did you know daily takeout coffees cost Brits £1,007 a year?

Why not sit down and check your outgoings and calculate how much money you’ve spent the past month on things you don’t really need? Once you’ve worked this out, set yourself a challenge to not spend this exact amount. Instead, at the end of the month, transfer this extra cash into your rainy day fund.

You’ll be surprised at how these little costs add up, and you’ll be surprised how much extra you can save for when you really need it.

Always be prepared

Having an emergency fund is just as essential as a budget when it comes to looking after your money. Hopefully, these tips will enable you to set up shop and master the art of saving for those unexpected rainy days.