An emergency fund is a safety net to help you cover the cost of unexpected expenses.
It’s intended to be used for things like unexpected car repairs or an emergency vet visit, therefore it should be easily accessible. Ideally an emergency fund should be able to cover 3 to 6 months of your expenses.
Without an emergency fund, you may find yourself turning to options like credit cards or loans which could lead to debt. An emergency fund should help you handle your unexpected issue without harming your finances.
Some of the classic ways to build your emergency fund include:
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Track your spending
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Open a separate savings account
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Automate your savings
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Cut small expenses
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Only access the money for a true emergency
If none of the usual ways to create your emergency fund appeal to you, why not try thinking outside of the box?
No Spend Challenge
Set yourself a time limit and commit to not spending anything on non-essentials for that period. Try starting small, maybe a week to begin with. But as you get used to it, why not see how far you can go? Can you manage a whole month? Maybe two? Taking on this challenge will help you to realise where you are spending money unnecessarily and where you can afford to cut back a little.
52 Week Money Challenge
Save an amount corresponding to the week of the challenge. For example, £1 in week 1, £2 in week 2, £3 in week 3 and so on and so forth. If you manage to make it to the end of the year you could have saved £1378.
Round up your purchases
Some online banking apps allow you to round up the cost of a purchase to the nearest pound and then deposit the difference into your savings account. Small, but regular, amounts like this can add up over time.
Save windfalls
If you receive an unexpected windfall, such as a tax rebate or a bonus at work, add it to your savings. You might be tempted to treat yourself but resist the temptation to spend it all and at least save a little.
Loud budgeting
Be honest with your friends and family about your savings goals. Suggest budget friendly activities as alternatives to expensive outings or encourage them to take on a savings challenge with you. Having the support and understanding of your loved ones can make the saving process less stressful. To learn more about loud budgeting, click here.
Building an emergency fund doesn’t have to be boring or feel like a burden. While traditional savings methods are effective, adding a bit of creativity can make the process more engaging and even a little fun. No matter which method you choose, the important thing is to get started. Your future self will thank you for taking the steps today to create a solid financial safety net for tomorrow.
It is important to take professional advice before making any decision relating to your personal finances. Information within this article does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain. Ethical Futures llp is authorised and regulated by the Financial Conduct Authority.