This month I thought our boiler had packed in. I immediately wondered how we would be paying for a repair?! Currently we don’t have boiler insurance and we can’t dip into house savings as this is protected so we’re able to move house once we’ve sold up. This got me thinking about how much you actually need in your emergency fund.
Whether its a boiler repair, car breakdown, washing machine packed in or a job loss. There’s many ways things go wrong that need sorting quickly.
How to calculate how much you need for your emergency fund
- Work out what your expenses are over a three month period.
- Gather all your numbers for direct debits and standing orders. Remember to include subscriptions you wouldn’t be able to cancel with immediate effect and allow for the minimum you’d be happy to have for food and fuel.
- Depending on the circumstances of the emergency, your outgoings for things like travel might also go up e.g. visits to a hospital and parking costs. The below image shows an example of what real families have experienced. Of course some unexpected expenses won’t be relevant to everyone.
When should you start?
Too many people will calculate the above and think “I can’t afford to put that money away right now”. Sadly, you can’t afford not too either. So start straight away! It will be a lot less painful to start putting away some emergency cash now. Doing it gradually instead of waiting for an occasion when you come into a lump sum, you’re more likely to do it too. Likelihood is that if you were to get a lump sum of money, you’d probably spend it anyway!
How to save an emergency fund when you’re already saving
Lots of us are already saving for a big purchase anyway. This might be for a car, house or wedding. If you’re committed to saving for something specific (and fun!) it can be hard to put away money that’s “just” for an emergency.
Instead of setting up a new method of saving for an emergency, increase your savings outgoing by a small amount. Then set up a syphon out of your savings into a separate savings account. This is unless your big savings are locked away and you’d be penalised for withdrawing. The idea is that you’ll feel less “pain” about your emergency fund savings being established and not notice the impact so much.
What if things are already tight and you don’t feel you can save anything?
When it comes to shopping around for your utilities and insurances, where you’re making a saving by switching, set up a standing order for the difference saved into a savings account. Even if you just save half of the difference, so you still feel you’re paying out less, this is a great way to put away without noticing it too much.
If you’re claiming certain benefits, you can also use the Help to Save scheme which gives you a bonus of 50% (half) on savings paid into a Help to Save account.
Fortunately our boiler wasn’t broken after all – it was just that the boys had a particularly deep bath the previous night as well as showers by the adults so there just wasn’t any hot water avail able! Panic over!