An emergency fund is a safety net. It’s money that you need for an event that you didn’t expect, for example, major car repairs, unemployment, a large medical / dental bill. Having a separate bank account with a rainy day fund, will help you to pay for those unexpected bills and help prevent you borrowing money. For us, starting an emergency fund has been a God send and I don’t know why I didn’t realize the importance of an emergency fund before!
If you are a regular to this blog, then you will appreciate that it has taken 18 years for my husband and I to get on the same financial page. If you and your spouse are struggling to have common money goals, then read my to tips here.
In this blog, we will discuss how much you should have in an emergency fund, what is an emergency and where should you keep your savings.
How much should I have in my emergency fund?
An emergency fund should be 3 – 6 months of expenses. Some people I know (mainly self-employed friends) have 12 months of expenses saved away. If your total monthly expenses – including your rent / mortgage are £2000 – then £6000 is a good target to aim for.
How much you keep in your emergency fund is up to you.
What is an emergency?
An emergency is not a holiday or Christmas Day! An emergency is unexpected, something you didn’t see coming. For example, a job loss, medical bills, car repairs, home repairs.
Where should you keep your rainy day money?
Remember, with an emergency fund, the most important thing is that you can access the money quickly. Don’t put your money in a 90-day notice account! Also, don’t worry about the interest, just think about how easy it is to access it in those times that you will need it most. However, also make sure that you’re not keeping your emergency fund in an account that is too easy to get to! Try an account with a different bank or building society, mainly so that you can’t transfer money over whenever you want!
If you have any other tips, please do share them in the comments below.