Last year I was struggling financially.
It is not that I am a spender, it just seemed that suddenly I had a load of costs that came out of nowhere –
I dropped my phone down the toilet and had to buy a cheap replacement, a friend was getting married at an expensive hotel, I had just bought a car and I was still in the early days of a relationship so had spent a lot of money going out on dates.
If one more tragic emergency occurred I would be in dept and have to rely on savings – which I did not want to do as that is for my future.
Therefore I needed to start planning for any future potential emergency’s.
So every month I got paid I put away 1/20 of my wage into an account I specially created.
On my financial spreadsheet (yes I keep track) I called it ‘The Emergency Fund’
The purpose of this fund was to cover any accidents – such as electrical goods breaking and needing replacement/repair, payments for car repairs or house maintenance costs.
And if I was lucky enough to not need to use it, it would be handy to cover my car insurance which is very expensive as I have only been driving a year.
I have been doing this for nearly a year and I feel relieved because I know if a problem does happen money in the current account won’t be wiped out and I won’t be desperate for my next pay day.
What are the benefits to an emergency fund?
- You don’t need to waste money on any ‘insurance’ offered by electrical purchases you have money to cover costa if anything happens.
- If you have a car accident which is your fault then the money from the emergency fund could be used to pay any damages instead of insurance, which would effect any ‘no claim’ bonus.
- The emergency fund soon adds up, part of this sum of money could be used to treat yourself to something (as long as the fund does not get depleted!)
- In the event of emergency, there is no need to work additional hours or cut back on regular living until next pay day
- This teaches the habit of saving and thinking ahead, instead of waiting to react. If you are young it will teach you how to be sensible with your money and get you used to prioritising how you handle your money. Yeah you want that iPhone now, but when you stop living at home you will have other things to worry about.
- It can be as much or as little as you want dependent on your wage and lifestyle. Base it on what you can afford – but make it realistic. I think 1/20 of the wage is the minimum to pay in, but this may need to be more depending whether you need the money to spend on the best or if your happy to settle for average.
- This gives you a sense of responsibility – no more asking for handouts from friends and family to cover your problems.
So I advise everyone to start any emergency fund – even if you are in dept I feel you should channel a little bit of money to one side, otherwise you may have some more debt to contend with.