How to Save Up an Emergency Fund

by Darwin on November 5, 2018

An emergency fund is a bank account which is set aside for use only in an emergency situation, which, if not accessible, could result in a personal finance crisis. Sudden, unforeseen events can result in huge financial burdens, including losing a job, the unexpected death of a family member, or a vital home repair.

Any smart person who has the necessary means to do so should aim to set aside an emergency fund in order to increase their financial security. This reduces reliance on financial fall-back options with high interestrates, such as a credit card or taking out an unsecured personal loan, which can result in further debt.

Whilst we should all be aware of the importance of saving for an emergency fund, actually doing so can prove tricky for many of us. We spoke with Fund Calibre to understand how to save up an emergency fund.

How much should I aim to save?

There is no time like the present, and the sooner you start putting some savings into your emergency fund, the better. It is wise to only put in an amount which you can afford, whilst keeping the rest for normal expenses and other important savings.

According to the Money Advice Service, an ideal amount for your emergency fund should be able to cover at least three months’ worth of essential expenditures. Likewise, over six months’ worth might be more than enough, and you may be better off putting that money in other places where you could be earning more interest, such as savings accounts and investments.

Set your standards

You must set yourself standards with regards to what is considered an emergency and would warrant dipping into the fund. As a general rule, an emergency would be something that affects your ability to earn moneyor your health. No, flying business class to Thailand doesn’t count as an emergency in anybody’s eyes, unfortunately (even if it is your birthday).

We might be tempted to treat ourselves and our loved ones from time-to-time, but you must ensure that the emergency fund is kept solely for crisis situations. Discuss what you’ll use it for with your significant other, and be sure to stick to it!

Moreover, keeping the emergency fund separate from your usual bank account is beneficial, as it helps prevent the easy temptation of spending some of the moneyin there.

Create a monthly goal

Setting yourself a realistic financial goal will quickly get you into the habit of having to save a specific amount each month. One tried-and-tested method is to set up an automatic direct debit to your emergency fund account on pay dayso that you do not forget.

Assess your expenditures

Being able to set aside a little bit of money each month for the emergency fund will become a lot easier once you are aware of all your expenditures. As such, you can start by making a list of all your outgoings each month, and then working out which of these are no longer necessary.

Haven’t used your gym membership for the last three months? Cancel it. Being invited out on a Friday night for the fourth week in a row? Cut down on your drinking.

Making these small sacrifices might prove difficult at first, but the feeling you get from knowing your back is covered if the worst were to happen more than makes up for a few missed drinking sessions at the local bar.

Get a side hustle

If you have the time and energy to do so, providing yourself with an extra source of income is highly beneficial when trying to save for an emergency fund. Perhaps you’ve got a penchant for writing and could carry out some freelance work? Or maybe your neighborsrequire a regular dog walker? The possibilities to earn extra cash for the fund are endless.

Do you have any other tips for emergency fund savings?

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