These days it is incredibly easy to get sucked into taking out credit to pay for big items or to fix things when they break down. This can be an expensive habit though in the long run. Having been down this route before and paid the price, I felt it was important to highlight the importance of having an emergency fund.
There are many reasons you may need to think about having an emergency fund and the amount you decide you want to aim for will vary vastly from one person to the next.
If you own a car, how would you pay if it broke down or needed new tyres in a hurry? Could you manage without the car if you couldn’t afford to fix it? What about the fridge, washing machine or even the boiler? These can all be costly items to fix or replace when things go wrong.
Credit cards and loans can be very costly ways to pay for things. The interest rates charged on these can be extortionate, particularly if you only make the minimum payment every month. Credit cards and loans do have their uses so I’m not slating them, you just need to be aware of the real cost of using them.
Having an emergency fund saved up means that you don’t need to quickly scrabble around to find the funds when things go wrong. Some people feel that they’d like to aim for £1,000 for emergencies, others like to have a few months worth of bills money stashed away in case of job loss. Whatever figure you decide on will benefit you though in the long run. Even a couple of hundred pounds could make a huge difference if the fridge packs up.
There are many ways you can start to build up your emergency fund. You do whatever suits you and your situation. For me, this year I’m joining in with a Virtual Sealed Pot challenge. The idea with this is that at the end of every week, you round your bank balance down to the nearest £5 or £10 and transfer the extra over to a “sealed” account. You’re meant to do this on a set day every week. As my next pay day is a Wednesday, I’ve been transferring the extra over on Wednesdays and budgeting for the following week based on my new balance. I don’t expect this method to make me a fortune but it’s a great way of stashing a little cash away every week.
You could decide to put £10 a week away or any other amount. The main thing is though that you put some money away in case of emergency, it’s like a cushion and it does make you feel that little bit more secure!