4 steps to getting started on an emergency fund

Set aside emergency funds for unforeseen circumstances.

16:00 21 November 2013

How can you save emergency expenses for three months, when you are struggling to pay expenses for one? You may be sick of people lecturing on the importance of saving. You do not need anyone to tell you how costly the unexpected gets. However, living payday-to-payday is too dangerous. Second to paying off any debt (with high interest rate), saving for an as-yet unknown emergency should be the highest priority on your list.

Let us skip lecture and talk about how to accomplish the impossible.

1.    Track your monthly expenses and be aware of what they add up to. There are some bills that are constant, such as utilities. But if the unexpected happens it is good to know how much the extras, like magazine subscriptions cost. Those expenses can be eliminated. Just remember to be realistic. If your normal grocery bill is £500, you cannot cut it down to £200.

2.    Now that you know where you stand, create a savings account for your emergency fund. This makes it easier to track your progress. Take the expenses you calculated in step one, multiply them by three, and set that as your goal for now. You can work your way up from there.

3.    Start saving. If possible, arrange to have your employer automatically take a sum out of your paycheck. If not, save a little amount each week (even just £10) to deposit at the end of the month in your emergency fund. And do not turn your nose up at the loose change jar. It works.

4.    Watch as your savings grow and do not get discouraged. It will take a while. Nevertheless, as long as you are committed and take care of this account, you will have something to give you security against the unexpected when it comes your way.