How to Build an Emergency Fund on a Budget
Building an emergency fund can feel really daunting. Especially when the sofa needs paying off, the kids need new school shoes and you're still wearing clothes from 5 years ago. But building an emergency fund was one of the best things we did. I like having peace of mind knowing that if either of us couldn't work for a periods of time, bills will be covered. I'm very open about my mental health struggles and being self-employed means I am constantly worrying about covering bills. What if I get too ill to work? My intrusive thoughts snowball to us being homeless all the time... So I decided to start building an emergency fund so I know we could cope if anything happened. It's also great to have an emergency fund incase of any unexpected bills. We dipped into ours last month when our dog decided to break into the Christmas gifts under the tree and eat some sultana and chocolate biscuits... £1500 later he's fine, but our bank balance is still recovering.
Set Realistic Goals
We would all love to have tens of thousands stashed away, but that's not realistic for both of us. Whether you can contribute £10 or £1000 to your emergency fund, its still something. I have my emergency fund AND sinking funds. So we split any leftovers between our emergency fund and sinking funds, therefore, our emergency fund is building up slowly. But nevertheless, it is growing.
The best thing to do is to look at your month expenditure and work out how much you can realistically afford to save each month. We also put in any surprise payments. For example, next month we don't have to pay council tax, so we are saving it instead.
Set up a Direct Debit
Once you have worked out how much you can save, set up a direct debit so you don't forget or get tempted to spend. I use the Plum app (aff) to work out how much I can save. It also rounds up purchases and sends the spare change over. I only set it up a few months ago and I already have £250 in there - and I didn't notice any of it going out! It just goes to show how much I could have been saving all this time!
Prioritise High Interest Debt
Having an emergency fund is great, but if you have high interest debt, you may want to consider paying that off first. By focusing on paying off debts you will save money in the long run. The longer you leave it, the more interest you will have to pay.
Side Hustle an Emergency Fund
When we began creating our emergency fund, we had NO disposable income to save! We were living month to month as it was! So I began side hustling to make some extra money to save. It was hard work at the time, but when our car broke down I was so thankful! I don't know what we would have done if we didn't have that extra money behind us - we would have probably been without a car. I have a whole section on my website about making money - just remember if you go over the £1000 threshold you will need to register as a sole-trader with HMRC.
Choose a High Interest Savings Account
We both having saving accounts with 5% interest. Our exact accounts are with Santander and are not available anymore. But you can find other saving accounts with high interest. ISA's are great too if you are saving - I am not a financial advisor so I can't advise which accounts you should go for - but Martin Lewis is always great for this kind of thing.
