What is an emergency fund?
Although lots of people save money to pay towards things like buying a house, a holiday or a new car, it’s wise to have some money set aside for financial emergencies. An emergency fund can help cover unplanned bills or payments that aren’t part of your usual monthly budget or if you lose your job.
An emergency fund can help in situations like:
- If you unexpectedly lose your job or are unable to work
- Unexpected yet essential expenses, for example home or vehicle repairs
- If your relationship status or living arrangements change unexpectedly
- Unexpected vet bills
How much should I have saved for emergencies?
Ideally, you should try to make sure you have at least three to six months of essential living costs saved in an emergency fund. This just means you have a safety net to cover your essentials should the worst happen.
Here’s how to calculate how much you’ll need to cover the essentials:
- Examine your monthly income
- Work out your monthly budget. Add up how much you pay each month for:
- Bills including rent/mortgage and utilities
- Regular payments like a gym membership, phone contract, and other subscriptions
- Living costs including food and clothing for you and any dependents.
- Any debts you are paying off
- Multiply your monthly budget by three or six to find out how much you ideally should have saved in your emergency fund
- Compare your income and outgoings to find out how much you can realistically save each month towards your emergency fund. How long will it take to save enough?
How to build up an emergency fund
Protect yourself and your family financially by building an emergency fund. Here are some tips for saving money for a rainy day:
Reduce your monthly outgoings
To save money you need to consistently spend less than you earn each month. Monitor your spending for a whole month so you can understand your habits and find ways to save money. Keep a record of everything you buy, including things like:
- Itemised grocery shopping
- Eating and drinking out
- Toiletries and beauty products
- Travel costs, including petrol, train or bus journeys
- Expenses for hobbies and activities
- Clothing, footwear, and accessories
Open a savings account
Opening a savings account gives you a designated place to save your emergency fund and helps you to be consistent with your savings. You can usually get a better interest rate with savings accounts than you would with a current account.
At Sainsbury’s Bank, we have a range of savings accounts to choose from, including ISA’s and e-savers.
- Defined Access Saver – our higher-interest savings account that lets you access your money up to three times a year, interest rate will reduce if more withdrawals are made
- Variable Rate Cash ISA – save up to £20,000 each tax year and pay no tax on interest
- Fixed Rate Cash ISA - save your money with a guaranteed rate of return
- eSaver Special – save money online and access it with no withdrawal restrictions
- Extra Saver – with no withdrawal restrictions, you can access your money at any time
- Fixed Rate Saver - save money for a set period with a fixed interest rate
Find out more and compare all our savings accounts.
Set a realistic savings goal
It’s important to set a savings goal that’s both realistic and achievable. Trying to save too much money will only result in you needing to withdraw some of the money you’ve saved to cover costs. If you can, allow yourself a buffer to cover monthly outgoings after you have put some money into your savings.
Set up a regular payment into your savings account
Treat your savings account as you would any other outgoing by setting up a standing order from your current account into your savings account. You can set this up to come out on payday or at the start or end of the month, so the money is securely in your savings account before you can be tempted to spend it.