How Much Money Should You Have in Your Emergency Fund?  

An Emergency fund is a cash backup you create to keep your future safe. It is not about creating wealth or letting you spend freely. This is an arrangement, i.e., meant to safeguard you during tough times like job loss, illness, medical emergencies, and coping with any unexpected expense.

You have no clue about the scenarios you might go through in the future. Here, you have to pick a worst-case scenario, like a sudden loss of a job, to understand the importance of emergency savings. This could be the time when you have to cope with a cash shortage.

Now, this shall continue until you get a new or better job. Thus, while you try to get a new job, your usual payouts need to be managed. How do you deal with such expenses when you no longer receive a salary?

This is where the concept of an emergency fund comes into picture. The different aspects that will demand money even when you have no job are:

• Rent payments
• Utility bills
• Paying off debts (even the bare minimum)
• Childcare expenses
• Transportation expense, etc.

To delve deeper and understand how much you should save as an emergency fund, take the help of this blog.

How to calculate and find money to be saved as an emergency fund?

When you are cut short of a stable income source, you need a safety net to manage planned and unplanned expenses. This saving procedure is usually done for a longer duration. However, not everyone will require the same amount as an emergency fund.

Some tips you can keep in mind to start with a savings goal.

• Check your recent expenditure pattern
• Choose a bill that requires you to save a small amount, like £ 500
• Getting started with a small goal would be easier
• Keep increasing the savings extent with time
• Continue with that for a given duration to pace up saving

These are the initial steps you can follow to get used to the process. Now, at some point, you must calculate the amount you require for essential expenses. The figure will vary from person to person.

Find a table below to understand how much to save and how long to survive with a given amount of necessary payouts.

Monthly expenses	3 months emergency funds	6 months emergency funds	12 months emergency funds
£ 2000	£ 6000	£ 12,000	£ 24,000
£ 3000	£ 9000	£ 18,000	£ 36,000
£ 4000	£ 12,000	£ 24,000	£ 48,000
£ 5000	£ 15,000	£ 30,000	£ 60,000

 

Let’s break them down for you,

If your monthly expenses are £ 2000, you will require £ 6000 to survive 3 months without a job. In a similar way, you will require £ 12,000 for 6 months and £ 24,000 for 12 months. You can see how it changes with different requirements.

4 Why should you create an emergency fund?

Even though you have planned everything cautiously, the unplanned can happen at any time. Thus, a smart person will always map out things to manage an unexpected situation. This could be a scenario which cannot happen in your planned life, but it has still happened.

This saving provision can prove to be helpful in such circumstances.

Prevent debts: You do not have to depend on your credit cards or take out loans to manage an unprecedented situation.

A financial cushion: When you have no job, even because of illness, you can continue paying for your basic needs.

Mental peace: Anxiety caused by finances is hard to manage. With an emergency fund, you can be worry-free.

No compromises: At times, because of a cash shortage problem, you have to let go of medical treatments. This will not happen anymore.

4 Where to keep these savings as an emergency fund?

As it cannot grow on its own, you must create it to secure your future. Build a separate account to keep saving money for this purpose without any intervention. One of the best places to keep an emergency fund is a high-yielding savings account.

Although it lets you withdraw money from it up to a certain limit, this is applicable for a month. Above all, if you ask about something that is safe, this option is the best of all. Thus, you should avoid investing your money in volatile assets, especially when you are saving money for this purpose.

What must you look for in an ideal emergency savings account?

Safety: The money you are keeping aside should not lose its value.

Liquidity: It should keep the money so safe that you cannot access it when it is needed.

No mixing up: A savings account for emergencies should be separate so that it remains untouched.

Generate earnings: Investing this saved money smartly can help it multiply and grow your savings.

Avoid investing in the stock market to save for uncertain times. While knowing the ideal places to save for this reason, you must be careful about the ways you should not invest money.

4 How to build an emergency fund saving?

You do not have to stash money all at once. Create a savings arrangement where you can transfer a certain amount of money every month. Over time, it will grow, and you can have the desired amount ready for you.

Here are the steps you can follow to generate an emergency fund.

1. Use a calculating tool

You can do it manually, or you can even use a calculator to find out the amount you should have as these savings. This can ease the process, and you can determine the amount you want as an emergency fund. Manual calculations might take time and might lead to some errors as well.

2. Start and automate savings

Once you are aware of the amount you should have, you can start the process. Again, here also, manually saving every month will require you to remember the date. Now, if you forget to remember the date, the savings will be missed.

You might not want such things to happen. In that case, you can automate the process to be worry-free.

3. Use windfalls

These are the additional money you may receive in the form of bonuses, tax refunds, etc. This is something you can get occasionally, but they are not included in your salary. You can use this extra money to increase your savings.

If you are earning money from a side hustle, you can use this money to grow your savings.

4. Monitor the progress

How much you have reached should be known to you. This will help you understand how much is left. Since you will be working with a target, you must keep track of the progress without fail.

The bottom line

What to do if you do not have an emergency fund? Does that mean nothing can be done? Wait! You can get loans with same-day payout from a direct lender in the UK.

For an urgent situation like disbursing a medical bill, you can reach out for these loans. However, they cannot be a permanent solution to any financial problems. This is because unforeseen necessities might arise from time to time.

You cannot apply for a loan to get out of the situation every time. Neither is this allowed, nor will you be able to manage the pile of debts. Having an emergency fund is the best way to handle any unexpected expense.