Picture this, your boiler breaks down in the middle of winter and you have to pay £500 to get it back up and running ...today!
This has the potential to cause a lot of stress. Where is the money coming from? Do you reach for you credit card? Call your family or friends to help?
This is where an Emergency Fund comes in.
An emergency fund is a pot of money set aside for when unforeseen expenses come up, it is a financial safety net.
Want to read?
The article below covers everything you need to know as well as some questions to get you thinking.
Prefer to watch a video?
No problem! Watch the 5 minute video below where Ed will take you through each of the steps.
5 Reasons to have an Emergency Fund
1. Protection against Emergencies
We've mentioned this already but it's worth saying again, life is unpredictable and unexpected expenses can arise at any moment. Whether it's a dental emergency, car repairs, or home maintenance issues, having a financial safety net ensures that you're prepared to handle these situations without going into debt or experiencing financial hardship.
2. Reduce Stress and Anxiety
Knowing that you have funds set aside for emergencies provides peace of mind. It eliminates the stress and anxiety that often accompany unexpected expenses, allowing you to focus on addressing the situation rather than worrying about how to pay for it.
3. Avoidance of Debt
Without a financial safety net, you may be forced to rely on credit cards, loans or other forms of borrowing to cover emergency expenses. This can lead to high-interest debt that takes months or even years to repay, exacerbating financial strain and potentially damaging credit scores.
4. Maintaining Financial Stability
A robust financial safety net is essential for maintaining overall financial stability. It acts as a buffer against financial setbacks, allowing you to stay on track with your long-term financial goals, such as saving for retirement, buying a home, or funding your children's education.
5. Flexibility and Freedom
Having savings earmarked for emergencies provides flexibility and freedom in financial decision-making. It allows you to navigate unexpected challenges without derailing your financial plans or sacrificing other priorities.
So now you know 5 reasons for an emergency fund, how much should be in it?
The amount of money to have in an emergency fund will be individual to each person or family, but a general rule of thumb is 3-6 month's worth of living costs. This might seem like a huge amount of money, but getting started is the first step. Even having just 1 month's worth saved away will help you feel more secure.
If getting started is in your way or your not sure which option could be right for you, book a free 30 minute call with Ed our Head of Coaching to get you on your way.