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Saving for an emergency
Sometimes, life throws surprises at us. Your car might break down or you might suddenly need to pay for something important, like a dentist appointment, fixing the boiler or a broken washing machine. If you don’t have emergency money saved for these sudden costs, it can be stressful.
That’s why having an emergency fund for unexpected expenses is so important. It’s a pot of money saved just for these situations. It usually covers at least three months of essential monthly outgoings.
This guide will show you how to build emergency fund and how much you might need. Plus, we’ve included examples of situations where such a fund could be a lifeline and what can happen if you don't have one.
What Is an emergency fund and why do you need one?
It’s worth opening an emergency fund savings account that’s separate from your other savings.
Use it to save money you’ll only use if something unexpected happens. This might be covering living costs if you lose your job or making repairs to something that breaks. It’s not for regular expenses or treats. It’s there to keep you safe from financial stress.
Without such an emergency money fund, you might have to borrow money to cover immediate and daily costs. This can cost you more long term because of the interest you’ll pay on loans. Having an emergency savings pot instead means you can deal with life’s surprises without worrying.
Example: Ethan’s broken boiler
When single dad Ethan’s boiler breaks down in the middle of winter and can’t be repaired, a replacement sets him back £2,000. He doesn’t have an emergency savings fund, so takes out a payday loan to cover the cost.
While the loan solves the problem quickly, the repayments and high interest mean he struggles to pay off the debt for several months. And they make it harder to manage his family’s other outgoings. He wishes he’d started saving an emergency fund to avoid borrowing.
How much money do you need in an emergency fund?
A good goal is to save a minimum of three months’ worth of living expenses. This means enough money to cover your rent or mortgage, food, bills and transport costs if something unexpected happens. If you work freelance or have an irregular income, you might want to save a little extra to account for quieter earning periods.
You can use an emergency fund calculator to figure out how much you’ll need.
Example: Yuki’s car trouble
Yuki is a practice manager who drives to work every day. One morning, her car breaks down. The garage says it will cost £800 to fix.
Luckily, she’s been saving money for emergencies. She uses some of these savings to pay for the repair and gets back to work the next day. And she’s already planning to rebuild her emergency fund by putting more money away.
How to start building an emergency fund
Emergency funds might sound daunting to think about. But you can build one up systematically.
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Set a savings goal: work out how much you want to save. For instance, three months’ worth of living expenses
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Open an emergency savings account: use a separate savings account for your emergency fund so you’re not tempted to access and spend it
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Save a little every month: even saving small amounts, like £10 or £20 a month, will add up over time. Put aside what you can and increase it if your budget allows
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Cut back on non-essentials: look for ways to spend less. For example, cook at home instead of getting takeaways or cancel subscriptions you don’t use
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Automate your savings: set up automatic transfers from your current account to your emergency money fund every month so you don’t forget to save
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Boost your fund with extra income: if you have a side job or sell items you no longer need, put that money into your emergency fund. Read our guides to selling online for some ideas
Example: Steph’s dental emergency
Steph works as a freelancer. One day, she needs urgent dental surgery that costs £1,200. She doesn’t have an emergency fund for unexpected expenses, so has to pay for it with her credit card.
The debt grows quickly because of the card’s interest rate. It takes her a few months to pay it off, so she ends up paying much more than the original dentist bill.
Benefits of an emergency fund compared with borrowing money
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It’s cheaper: borrowing money often means paying interest, which can make emergencies more expensive to pay for long term
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It’s less stressful: with an emergency savings pot, you don’t have to worry about taking on debt
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It’s flexible: you can use it when you need it, without waiting for loan approvals or borrowing limits
Example: Rajesh loses his job
Rajesh is a graphic designer. When his company downsizes, he loses his job.
Luckily, he’s saved enough for a few months’ worth of expenses in his emergency fund savings account. He uses the money to pay his rent, bills and food while he grows work and his profile as a freelancer.
He’s still careful with his spending, but the fund provides a cushion. And he doesn’t have to rush to accept the first job offer he receives. Instead, he can focus on finding something he really wants.
Review and update your emergency fund
Once you reach your savings goal, don’t forget about it. Life changes. Your expenses might go up or you might want to save a bit more for added peace of mind. Check your emergency savings fund regularly to make sure it still meets your needs.
Key takeaways
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Building an emergency cash fund doesn’t have to be difficult
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Start small, save regularly and focus on reaching your goal of three months’ living expenses
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Setting money aside can make all the difference when life throws something unexpected your way
Take the first step today and start saving for an emergency fund. You’ll thank yourself later.
Start saving for life’s little surprises
Common questions
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Set aside an emergency fund for unexpected costs like losing your job or sudden repairs. Experts suggest saving at least three months’ worth of living expenses. You can use an emergency fund calculator to see how much you might need.
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Start small. Building an emergency fund even with £10 a month will add up over time. Look for ways to spend less and put any extra income into your fund.
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This depends on your budget. A good starting point is 5-10% of your income or a set amount you can afford. Use savings calculators to determine what will work best for you.
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It’s best to save it for real emergencies like job loss, medical bills or urgent repairs. For other expenses, use a separate account you’ve opened for a particular savings goal or rainy day fund.
- See more FAQs
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It depends on how much you can save and how often. Use savings calculators to work out the savings goal you want to reach and how much you’ll need to put away each month to reach it.
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Use a separate savings account for emergencies. It should be easy to access but separate from the accounts you use for day-to-day spending or to save for other purposes.
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An emergency savings fund is for major unexpected expenses, like job loss. A rainy day fund is for smaller costs, like replacing a household appliance
Savings to suit you
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Easy access savings
Keep your money somewhere safe, but withdraw whenever you like
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Fixed rate savings
Saving for the longer term? Earn a fixed rate of interest for a set period of time
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ISAs
Save tax-free with a fixed or variable rate of interest, or even both
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