When you first start on a personal finance journey, it can be overwhelming knowing where to start and what to do first.
Whether you are working to become debt free, to save for your big goals or you just want to get on top of your finances, an Emergency Fund is a great place to start.
So what is an Emergency Fund?
An Emergency Fund is what the name suggests, an amount of savings put aside to cover emergencies!
This could be anything from unexpected bills, car repairs, a broken dishwasher, dental accident, or even job loss, you name it. Anything which is expensive, that you may not have the money for.
Why do I need one?
The reason an Emergency Fund is so important is because no matter where you are on your finance journey, sometimes life gets in the way and costs like this come up.
If you have an Emergency Fund in place then as annoying as the expense is, you don't need to worry too much because you know you can cover it and face the problem head on.
This helps reduce a lot of anxiety that women have when it comes to money, and reduce the risk of getting into debt.
If you are working to clear debt it is easy to have to rely on further credit if you don't have an Emergency Fund in place, which can lead to feeling even more overwhelmed and anxious when it comes to your money. This is not what we're aiming for!
If you don't have debt, you are lucky that you may have other savings to lean on, but may then feel resentment that you are having to take money from your goals and as though you are making backward progress which can then impact your motivation to save (and hit those goals). Or maybe your savings don't quite cover it, resulting in you needing to look to credit.
How much do I need?
This is all down to personal preference and lifestyle, but £500 to £1,000 is a great starting point for your Emergency Fund. This amount should cover most unplanned expenses, and is attainable to most people without feeling too overwhelming, as it can be built up over time.
At this point, you can focus all your efforts to paying off your debt or reaching your savings with the peace of mind that if anything unexpected were to happen you can afford it.
It also creates a great habit of learning how to save if this is not something you are used to, and feeling comfortable with having a specific amount of money.
After you have achieved this, you may want to increase this and save up between 3-6 months of expenses to your Emergency Fund to cover any risk of job loss, or an amount in between the two. This is all down to personal preference and what you feel comfortable with, as everyone's lifestyle and circumstances are different.
I keep my Emergency Fund in a separate account to my general spending and saving so that I don't feel the temptation to reach for it (for example if I am out shopping and see something I like which I don't have the money for in my budget!)
This helps to keep me accountable so that I can work towards my bigger goals.
Let me know how you find it if you already have an Emergency Fund set up! I really value the peace of mind it brings me knowing I don't need to have a wild panic when life gets in the way!