Are you prepared for a financial emergency?
Sometimes pressing issues, beyond our control, can affect us financially. The rapid collapse of the economy in Greece has put millions of people out of work. Unexpected incidents like this demonstrate just how important it is to have a financial buffer in case things do go pear-shaped.
So what’s the best way to tackle the financial consequences of an unpredicted event? Money Advice Service recommends creating an emergency fund consisting of three months’ worth of essential outgoings. This way, if you were faced with financial difficulties, you’d have enough money for a few months to get yourself back on track.
A Fund to cover necessities
Your emergency fund could help to cover the following necessities:
- Travel costs
- Insurance premiums
- Mortgage or rent
Ways to manage an emergency fund
There are ways in which you can manage your emergency fund to make the most of it, here are some suggestions.
Review past expenses
Take a look over your outgoings from the last few years. By sifting through old bank statements, you should be able to get a good idea for the sorts of unexpected expenses you might have to pay in future.
Make or amend your budget
Plan your budget ahead for the upcoming year or review your existing one with the assumption that you need to make room for emergency payments. This way you can be better prepared when sudden expenses do crop up.
Set up a standing order
Setting up a regular payment into your fund can prevent saving slip ups by ensuring the money you intend to put away definitely ends up in the pot each month.
Divert savings to your emergency fund
Look at areas of your budget which you can easily trim down on and transfer the excess money to your emergency reserves. It might be that you decide to dine out less, or perhaps it’s a case of cutting down on luxury purchases to rack up a bit of extra savings.
Keep your funds separate
Having your rainy day fund in a separate account can help to eliminate the confusion of what you’re spending and where. Psychologically, it helps to draw the line between every day purchases and emergency expenses.
Make sure you’re covered
Having some form of protection in place can help to cushion the blow when unforeseen costs arise. Whatever the insurance policy – whether it’s over 50s life insurance, health insurance or income protection, financial protection products can help to shield you from big expenses.
You’re not a fortune teller, so you can’t predict the future, but being prepared for the unexpected can help to ease some of the stress if you ever do end up being stuck in a financial rut. Having a small safety net of savings to fall back on is better than having none at all. If you would like some ideas on how you could build up a rainy day savings pot, try our frugal tips to make you richer in 2015 ».
Note: Whilst we take care to ensure Hub content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. OneFamily do not provide advice so it may be worth speaking to an independent financial adviser about your own circumstances.