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Emergency Fund – how much should you save?

The Emergency Fund is there for when things suddenly go pear-shaped. This can range from an unannounced car or home repair to suddenly find yourself without an income. If you’re unprepared, such events can have a devastating impact on your finances.

Therefore, it’s crucial to have an Emergency Fund that is readily available for if (and more likely when) these situations hit. Suggested Emergency Fund savings range from £1,000 to six month’s living expenses. But what amount should you save, how much is too much and are you missing out?

Ultimately, it’s down to your personal circumstances. However, there are some general rules of thumb on how big your Emergency Fund. Following these guidelines will help you be ready for when the time comes and ensure your money is hard at work for you at the same time.

According to a 2018 survey, 27% of people in the UK have no savings that can be quickly accessed in the event of an emergency.

Independent 08/04/18

What is an Emergency Fund?

The Emergency Fund is a separate pot of money that is readily available and specifically set aside for a personal finance crisis. As such, the Emergency Fund is a crucial foundation for successful personal finance.

Fundamentally, it creates stability by being prepared for unforeseen circumstances without needing to rely on a line of credit with high-interest charges.

Therefore, the Emergency Fund is one of the pillars of financial fitness and should be prioritised above investing or paying down the mortgage.


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Do you need an Emergency Fund?

What could go wrong, right? Well, lots as it turns out. Common financial dilemmas that an Emergency Fund will help protect you against, include:

  • House repairs – not covered by insurance or below the excess charge.
  • Appliance breakdown – washing machines, tumble dryers, and dishwashers are all common culprits.
  • Unemployment/loss of income – specific insurance against this can help but also be really expensive.
  • Sickness – even many private health care policies have exclusions, particularly for existing conditions.
  • Car troubles/maintenance – tyres and out-of-warranty issues can crop up and are often expensive. Many people can afford the monthly payments, often for prestige brands such as BMW and Audi. Yet very few budget for the upkeep, which can carry hefty bills for such cars.
  • Split from a partner in addition to the heartache (or perhaps not), you may now have increased bills to pay on your own. There may also be moving costs, such as deposits for a new place.
  • Divorce when legally separating, things can get expensive real quick. Costs include legal fees, the splitting of assets and temporary accommodation. In fact, the average cost of divorcing in the UK is over £14,500.
  • Unplanned travel – if either you or relatives live abroad and get sick, you’re going to want to see them quickly without worrying about finding the airfare.


28 per cent of people in the UK with debts said they would struggle with rising interest rates.

ING International Survey 2018

When to start saving for an Emergency Fund?

Now! However much, start now. Because anything is better than nothing. Saving just £3 per day gets you to the base-level £1,000 emergency fund in less than a year. Simply skip the morning latte or take your own lunch for work and invest in your financial fitness. Done.

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Three HUGE benefits of an Emergency Fund

There are many benefits to the emergency fund. Here are the top three.

1. Save on expensive interest charges

Typically, without an Emergency Fund ready and available, when the time comes, people turn to credit. Be it personal loans, credit cards or worse, payday lenders. Either way, this lack of planning comes with hefty interest charges that mean the emergency ends up costing far more in the long run.

In addition, the time taken to then repay back this debt and the accruing interest charges is distracting and makes a serious dent in your financial goals.

So, having a pot of cash ready for such events makes the whole thing cheaper than it needs to be. Plus, it keeps you on track without the opportunity cost.

2. Less stress

There is a huge emotional benefit to feeling prepared. With an Emergency Fund there’s no worry, no fret and no sleepless nights. Just embrace that sea of calm knowing you’re ready for anything. Having the security that you and your family are financially self-sufficient for six months is greatly empowering.

3. Positive Money Mindset

Allocating savings as part of your budgeting (before working out what’s leftover for Nando’s and other frolics), follows the ‘pay yourself first’ mentality of successful personal finance. Savings of any form should be viewed as a mandated monthly outgoing. It should absolutely be prioritised before your fun money and not seen as an optional extra.

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Emergency Fund – how much money is enough?

How much to save in your Emergency Fund is usually between three to six months’ living expenses. Ultimately though, it depends on your personal circumstances.

Here are some guidelines to help you work out what amount’s right for you.

Base level: £1,000

£1,000 is considered the minimum level of  Emergency Fund and should cover most low-level emergencies. Fundamentally, it stops you from using a credit card or loan with exorbitant interest charges. Doing that only makes the situation worse.

Importantly, even if you already have debt, this level of Emergency Fund should be prioritised before making extra debt repayments. It stops you from going further into debt. Just make sure you are still making your minimum debt repayments.

Three months’ living costs

Crucially, the key word here is ‘expenses’. You need enough saved for covering the essentials. Therefore, luxuries such as Netflix and eating out shouldn’t be included. When things are tight, such items can be sacrificed. They can always be added in once you’re back on your feet.

Consider this level if you:

  • are a single person
  • have no dependents
  • are in a living / romantic situation providing a dual income
  • are debt-free (you should clear any debt before saving for this level)
  • live with parents
  • tolerance a higher level of risk
  • have income protection insurance
  • work in a stable industry
  • earn a consistent and predictable income

Example – if your living costs for housing, utilities, debt, food, and other essentials are £1,000 a month, then shoot for £3,000.

The emergency fund is sacred and is for emergencies only!

Six months’ living costs

This may be more appropriate if you:

  • have dependants/are a family
  • rely on a single income
  • prefer a lower level of risk
  • have debt (though you should clear any debt before saving for this level)
  • receive an inconsistent income (eg, freelance)
  • are retired
  • currently living through a recession/period of high unemployment
  • work in a high risk/unpredictable industry

Example – if your living costs for housing, utilities, debt, food, and other essentials are £2,000 a month, then shoot for £12,000.

The Emergency Fund – is bigger always better?

Is bigger better? As we all know (ahem), NO! Or at least not necessarily.

Firstly, by stashing away more than you need, there is a potential for lost opportunity. For example, could the fund be reduced by 25% and the difference invested where it has the potential for greater growth?

Secondly, one of the pre-requisites of an Emergency Fund is that it is easily accessible. For that reason, many people plump for a current or instant access savings account. Easy to get at maybe, but that usually means low-interest rates. As a result, you could be missing out on opportunities where your money could be working harder for you and earning more.

And lastly, when savings are held in savings accounts what interest rates lower than that of inflation, the value of your money is being eroded over time.

It’s what you do with it that counts!

For these reasons, beyond the three to six living expenses point, bigger is NOT necessarily better. Do the sums and assess your tolerance for risk and personal circumstances.

But for most people, any more than six months’ giving expenses represents missed opportunities. This could slow down the path to achieving your financial goals. It’s a balance. And if you find yourself going above this amount, perhaps revisit your money mindset and work out why. It’s often driven by fear.

How much money you stash in your Emergency Fund is down to your personal circumstances and appetite for risk. Just remember to revisit this and adjust according to your situation or economic environment.

Here’s to financial fitness. does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. If you need financial advice Unbiased can connect you with a suitable professional for free. Investments may go up as well as down and you may get back less than you put in.