Building an Emergency Fund

An emergency fund is money set aside to help cover unexpected expenses or financial emergencies.

Having an emergency fund can provide peace of mind and help prevent the need to borrow money when something unexpected happens. Even a small amount of savings can make a significant difference during difficult times.

Building an emergency fund is one of the most important steps you can take to improve your financial resilience.

An emergency fund is savings that are specifically reserved for unexpected situations.

Examples include:

• Car repairs.
• Emergency home repairs.
• Replacing a broken appliance.
• Unexpected travel costs.
• Temporary loss of income.
• Urgent household expenses.
• Unexpected medical or care-related costs.

The fund is intended for genuine emergencies rather than planned spending.

Without emergency savings, many people need to rely on:

• Credit cards.
• Overdrafts.
• Loans.
• Buy Now, Pay Later agreements.
• Borrowing from family or friends.

An emergency fund can help you deal with unexpected expenses without increasing your debt.

Benefits include:

• Reduced financial stress.
• Less reliance on borrowing.
• Greater financial security.
• More control over your finances.
• Better preparation for unexpected events.

The ideal amount will depend on your circumstances.

A good starting point is to build a small emergency fund and increase it over time.

Consider setting goals such as:

Starter Emergency Fund

£100 to £500

This can help cover smaller unexpected expenses.

Medium-Term Goal

One month's essential household expenses.

Longer-Term Goal

Three to six months' essential household expenses.

Remember, any amount saved is better than having no emergency fund at all.

Many people think they cannot save because money is tight.

However, small amounts can add up over time.

Examples include:

• Saving £5 per week.
• Saving spare change.
• Setting aside money from overtime.
• Saving part of a benefit increase or back payment.
• Saving money from reduced household bills.

Treat savings like any other household bill.

When creating a budget:

• Work out your income.
• List your essential expenses.
• Set a realistic savings target.
• Save what you can afford regularly.

Even setting aside a small amount each month can help build a financial safety net.

Consider keeping emergency savings in a separate account from your everyday spending money.

This can help:

• Avoid accidental spending.
• Make savings easier to track.
• Reduce temptation to dip into the fund unnecessarily.

Choose an account that allows you to access your money when needed while keeping it separate from day-to-day finances.

You may be able to increase your savings by:

• Reducing unnecessary subscriptions.
• Switching utility providers where appropriate.
• Taking advantage of discounts and support schemes.
• Creating a household budget.
• Reviewing regular spending.

Small savings made elsewhere in your budget can be redirected into your emergency fund.

Unexpected money can provide an opportunity to strengthen your emergency savings.

Examples include:

• Tax refunds.
• Gift money.
• Backdated benefits.
• Overtime payments.
• Refunds and rebates.

You may wish to save some or all of these funds to improve your financial security.

An emergency fund should generally be used for genuine unexpected expenses, such as:

It is usually best to avoid using emergency savings for:

If your income is currently stretched, focus on:

• Creating a realistic budget.
• Reducing household expenses where possible.
• Checking your benefit entitlement.
• Accessing available grants and support.
• Increasing your household income.

Once your finances improve, you can begin building your emergency fund gradually.

Some common mistakes include:

• Setting unrealistic savings goals.
• Giving up after missing a contribution.
• Using savings for non-emergencies.
• Keeping no emergency savings at all.
• Waiting for the "perfect time" to start.

The best time to begin saving is usually as soon as possible, even if the amount is small.

An emergency fund can help you:

Our advisors can help you:

• Create a realistic household budget.
• Identify opportunities to save money.
• Increase your household income.
• Access grants and financial support.
• Improve your financial wellbeing.

Contact our team for free, confidential advice and support.