Collaborative Post
An emergency fund is something that not everyone knows about. On paper, it makes total sense but until people have it explained to them, they don’t really understand what it is or what it is used for. You should use yours if you have one when unexpected expenses occur but that isn’t always possible. I wanted to share some ideas for coping with unexpected expenses.
How Can I Pay For This Emergency Expense?
An emergency fund is exactly what it says on the tin – a fund you have for emergencies. You can choose the amount you put in but a general idea is at least £500 if you are on a low income and £1000 if on a higher income. You can always build this up to more but this is good as a starting point. It is designed to help at times when you need cash in an emergency – your car has failed its MOT, your boiler broke, an immediate family member is in the hospital and you need cash for the time off work, parking, food and more. It’s there when you absolutely need to pay for something but don’t have the funds available.
It can be hard to even rustle up the money to fund your emergency fund though which is why credit card alternatives can be a great help in the meantime. Polar Credit are a company who offer credit lines for when you need some cash on a short term basis. It is not a loan – it is like a credit card but without the card. You make a minimum payment each month and instead of the card, simply withdraw cash straight to your bank account. You only pay interest on the cash drawn out rather than the total credit limit agreed.
However it is important to understand the risks involved and only apply for credit when you absolutely need. Do not apply for credit for frivolous spending – it can only cause problems! It is quick to open, needs no guarantor, is flexible and offers rewards for loyalty.
Photo by Katie Harp on Unsplash
How Much Do I Need?
As mentioned above, a starter emergency fund should have between £500-£1000 based on your income. However you can build on it from there and as a general rule of thumb, 3-6 months savings is a good call as it covers for you if you need time off work. It is there to cover any mandatory expenses you might need it for.
If you don’t have an emergency fund, then work out what you need and consider a credit line such as Polar Credit or borrowing from family or friends to cover costs.
What Can I Use It For?
I mentioned a few things above but here are a few ideas of what an emergency fund should be used for:
- Broken boiler
- MOT failure
- Living expenses if you have lost your job
- Emergency home repairs
- Unexpected medical expenses
- Unexpected but essential travel
It should not be used for frivolous spending such as holidays, clothing, entertainment costs and much more.
What Should I Do If I Use My Emergency Fund?
If you have to use your emergency fund, you should seek to replenish it as soon as you possibly can. It might not be possible straight away if your emergency or problem is ongoing but as soon as you can, work towards bringing it back up to the appropriate level. This is also the case for credit lines – if you need to use a credit line, make sure you get it repaid as quickly as you can.
This is such a useful post as it’s one so many of us don’t ever want to think about so thank you for sharing the tips.
I have a couple of emergency fund pots stashed in my bank accounts, it’s so important to save for the unexpected.
Unexpected expenses are the worst, I always try and put some money away for rainy days but it always seems like everything happens at once and you run out so quickly.
Unexpected expenses can be really difficult to deal with financially and emotionally, the stress is particularly difficult. I do have an emergency fund and have been grateful to have one on more than one occasion when we’ve had unexpected expenses such as car difficulties or broken household appliance. It can be difficult to replenish it quick enough though if something else comes along.
I imagine it can be difficult and worrying if an unexpectedly high bill arrives. I’m not entirely sure what I would do, as I’m guilty of not having an emergency fund.