Our experts recommend that everyone has an emergency fund in place before they start working towards their medium to long-term financial goals. Hopefully, you’ll rarely need to use it! Learn about emergency Funds, also called ‘tracker funds’, are financial instruments that have been set up to match or ‘track’ the price of a market index. Investing in a fund lets you get exposure to different financial assets like shares and bonds, without having to buy them directly. and how to build one.
What is an emergency fund?
An emergency fund is a savings pot that you can use to cover any unexpected expenses or financial shocks. These could include situations like losing your job, getting a large medical bill, or needing to fund home repairs.
Why should I have an emergency fund?
Think of your emergency fund as a financial safety blanket. Having one will give you peace of mind that you’re prepared in the event of any financial surprises, as you’ll be able to quickly dip into your savings.
Having an emergency fund also means you’re less likely to get into financial difficulties, like debt. When you have a savings buffer to fall back on, you’re less likely to need to take out a loan.
How much should I save in an emergency fund?
A good rule of thumb is to save enough to cover between 3 to 6 months’ worth of essential living expenses – like your mortgage or rent, utility bills and food. So, if your total essential living expenses are £1,000 per month, you should aim to save at least £3,000 in your emergency fund. The more you can save, the better prepared you’ll be for any unexpected costs.
Where to keep your emergency fund
When choosing the right account to save your emergency fund in, accessibility is key. You should keep your emergency fund in a cash savings account that lets you withdraw your money quickly if you need it – not an account where you need to give a lot of notice to withdraw. Pick a savings account with a great return, like the Moneybox Simple Saver, that lets you withdraw once per calendar month.
How to build an emergency fund
- Set a goal amount – Only you can decide how much you need to save! Look at your current monthly expenses to figure this out. Then, decide how much you can afford to put aside in savings each week or month.
- Build up your emergency fund over time – Start by aiming for 3 months’ worth of essential expenses, then build it up to 6 months’ worth. Keep topping up your emergency fund when you can.
- Check back in regularly – As your lifestyle or monthly outgoings change, your emergency fund may have to change too. Also, if you’ve had to dip into your emergency fund, remember to top it back up again.
Once you’ve built your emergency fund, you’re ready to get your money working harder by investing! Let’s move onto Step 3 – the saving and investing accounts you need to know.
The Simple Saver account lets you withdraw once per calendar month.
All investing should be long term (min. 5 years). The value of your investments can go up and down, and you may get back less than you invest.