How much should an emergency fund be?

Poosmate

I sort of have 2 small emergency funds and both have helped me out of sticky situations over the last couple of years.

I run 2 current accounts. My salary is paid into one then a set ammount is trasferred into the other out of which all my bills are paid. Because things like TV licence (I think), Council tax and water rates are paid over 8 or 10 months I get a couple of months whereby there is more money going into that account than coming out. Also, like my mortgage payments have reduced and sometimes I can get a payment holiday from BT.

The other current account (the remainder of my salary after all bills) is used on food, petrol, CC payments and general living expenses. There is never anything left in this account at the end of the month (something I should look into reducing my everday spending!).

From my "everyday" current account I put a measly £15 into a mini cash ISA - it's not much but it's something.

Before I started saving my £15 per month, I was having to pay for things like car insurance, breakdown cover etc on my credit card which was getting me deeper into debt. I had a mini lightbulb moment and started saving and now don't need to use my credit card for anything. It's a start that's enabled me to stop the downward spiral.

I am now almost at a place where my minimum credit card payments are comfortable so this year, as the minimum payments reduce by £5 I shall increase my savings into my ISA by £5 - that should be soon as I intend to use my reduced mortgage payment savings to pay a chunk off one of the CC's (the one with the highest APR).

It may not be the best plan in the world but it works for me.

Hope this helps.

Poo

Dweebie

Hi.
I've got three!
Joint account for the bills, and I pay in a bit more than needed, plus there's the months when there's no council tax etc.
Savings account for the big yearly payments: car tax, insurance, vet bills, christmas fund.
ISA, which is a bit low at the moment, but I'm aiming to have 3 months living expenses in it by April.

It looks complicated, but it works for me!;)

katsu

lisalongsox wrote: »

Just wondered if alongside paying off debts I should be putting a little away each month in case the worst ever happened regarding job loss etc. I mean if we were both to be unemployed the credit card debts would be least of worries and we have insurance to cover mortgage for up to 12 months. We would need day to day living money for food and utilities though.

Personally, I'd say not if you have high interest debts. They are your emergency. That is different to budgeting for annual car tax/MOT etc. We've cleared our debts and have no savings (I think I have £17.25 in an old account actually ) but if things went wrong before we had saved up enough money, the worst that would happen is we would be using our overdraft to fund groceries, and incurring interest charges. Those charges we are not incurring now as we cleared our debt quicker, saving CC interest and enabling ourselves to watch our savings start to grow without our debt alongside them. Obviously if you anticipate redundancy a small saving pot for the mortgage in the short term (before your insurance kicks in) etc may be prudent.

lisalongsox

Thanks for the replies. I lost this thread, lol. Forums still confuse me!!

I have had a Direct Debit set up for ages for £50 a month into a savings account - this usually manages to get to £200-£300 before some emergency kicks in - car repair, household repair, or lack of funds in Current Account.

Im saving every £2 I get in a separate jar for xmas this year to help soften the blow. Im not over extravagent at Xmas time. Hubs and I buy each other nothing or something for the home instead. I do like to spend a decent amount on my twins (age 4) which is around £100 - £150 and have a budget of £150 for everyone else (which is 17 people in my family!!). Christmas dinner is paid for (we eat out as an extended family - treat of my aunt - so only have to cover petrol costs and drinks - we are both practically tea total. So I think we get away with Xmas quite lightly and still have a nice time.

I think I will keep up the £50 pm as it has helped us out of a tight spot now and then without falling back on more borrowing. It never gets to a large amount and I can still pay the minimum on my debts and some on top most months. Though now I am aiming to cut back in other areas such as utilities and food. We are doing this by withdrawing a budgeted amount in cash on payday from our current account and living on this. The amount has to cover food, petrol and misc expenses. All utilities are taken care of as is mortgage, insurances and minimum card repayments. Any extra left over from it goes straight to the most expensive debt. Thats the theory - we are still living on Decembers money at the moment so will have to see how much remains at the end of the month.

Im finding working in cash much easier, personally. Im far more reluctant to part with it than swipe a card! Before I wouldnt blink at spending nearly £20 on two adult coffees, soft drinks for twins and a fancy sandwich. Now I take out ready made up juice and snacks for kids and make sure me and hubs are full before venturing out! I also find myself comparing the price of everything and asking if I really need items before purchasing them and its only been a week!!

Well rambled on but its quite theraputic, lol. Its amazing when you start this money saving lark that you actually feel sick about the probably thousands of pounds you have wasted over the years!

:eek: