What’s the right emergency fund amount for you?
An emergency fund is money you put aside to cover a financial shock. This could be losing your job, or a large, unexpected expense. Building an emergency fund can help prevent you needing to borrow money or make difficult financial decisions in those moments, by giving you savings to fall back on.
Worryingly, one of the things the COVID-19 pandemic has demonstrated is that anyone could find themselves in financial difficulties. But three out of ten (30%) working people in the UK could only manage for up to a month financially if they had to rely on their savings to cover their outgoings, research reveals.
A quarter (26%) of workers said they had less than £500 in savings. The results also highlighted that the issue affects younger people most severely, with 40% of 18-to-34- year-olds in work unable to manage more than a month if they found themselves without their salary.
The COVID-19 pandemic has intensified issues around financial wellbeing in the working population. As well as one-fifth (21%) admitting to saving nothing on a monthly basis, more than one in ten (15%) have increased the amount of debt they have over the previous 12 months, and a quarter (26%) have had to borrow from family or friends during the period.
Almost half of working Britons (49%) said they feel stressed about their financial situation. This doesn’t just cause problems with meeting unexpected bills or dealing with a loss of income due to sickness or unemployment.
Money worries can affect all aspects of people’s lives, which is why it is important for people to build a healthy savings pot and improve their financial wellbeing to protect themselves from any sudden and unexpected changes to their situation. There’s also clear evidence that low financial resilience can also have an impact on mental health.
If you have money set aside for emergencies, you’re far less likely to experience financial difficulties or have to borrow at a high interest rate if things go wrong or your circumstances change. Knowing you’ve got some money you can access is essential.
Typically, you should aim to have enough money in your emergency fund to cover your expenses for at least three to six months. Saving regularly is a good way to build up an emergency fund. You’ll find that if you get into the habit of saving each month your savings will soon mount up.
Illness or injury
If you are also worried an illness or injury could leave you without enough to pay bills, there are ways to protect your income. To protect you and your family comprehensively, you should consider insurance – especially if your employer does not have an occupational sick-pay scheme.
The four most common types of insurance that protect your income are income protection insurance, critical illness cover, life insurance and payment protection insurance.
How much should you save?
How much you need, and what an ‘emergency’ is, will depend on your situation. It’s best to split your savings, so you’re keeping some to hand for emergencies and putting the rest where it can work harder for you. To find out how we could help, please contact one of our advisers by clicking here.