The Value of Building an Emergency Fund (EF)

fatbelly

YORKSHIRELASS said:

Thank you so much, that is incredibly helpful.  The thought of not paying anything for a few months is really scary and I am not looking forward to those letters, but I would feel so much better having something set aside.  I want to manage my DMP myself because I want to be in control.

Good attitude. Remember non-priority debts are non-priority. They have to work through standard letters (arrears, defaults). It's not personal and nothing happens quickly. Even the defaults require 3-6 missed payments

tigerfeet2006

I started my EF and put the money in the local Credit Union. CUs are absolutely fabulous especially if you need to find some money quickly in an emergency and you haven’t quite saved up enough in your EF. The great thing about a CU is as you are paying the loan back ( they do an affordability check and will only let you borrow what you can afford and the interest rates are good) you pay some towards your loan and some towards your savings. 

TryingAgain2022

Interesting. I do get it, but right now I would only be putting in a tenner a month at most - I'm desperate to get rid of the debt before I think about saving, because the debt is actively costing me money.
I'm lucky in that my OH has paid for actual emergency stuff (boiler repair, etc). If anything happened with his job we'd be stuffed (or rather we'd have to put it on credit card).
£120 a year doesn't seem like much of a fund but I guess it's a start. It will be 2 more years before I'm expensive-debt free and I know we're living on the hope that nothing goes wrong. We can get credit, no prob. But we just don't want to.
I do contribute towards an 'annual costs' savings account to help pay for known expenses like car service etc which I used to put on credit card. So I guess I've made a small start on this way of thinking.
-TA2022

prb1984

I think the government (not right now maybe, but going forward) should be educating people on the importance of an emergency fund. To some degree, I would suggest that it is reasonable for a government to assume that people carry some level of backup fund should emergencies happen. Obviously not to the degree that COVID is having, but it is certainly something that every adult should be expected to do. Whether this education comes in the form of better financial education during secondary school I don't know.
Nothing, and I mean nothing, in my financial journey has given me more peace of mind that a solid emergency fund. It means I don't have to worry about what the world throws at me. The difference to stress/anxiety/panic levels is just amazing. I would suggest peopple promise to build their emergency fund to see what it's like just once, and they wouldn't go back.

prb1984

TryingAgain2022 said:

Interesting. I do get it, but right now I would only be putting in a tenner a month at most - I'm desperate to get rid of the debt before I think about saving, because the debt is actively costing me money.

It's not saving though, it might look like it in every way, but it is not.
It's putting money in place to stop you going further into debt. There would be no point paying off debt without an emergency fund, as you would be incredibly lucky to not have something crop up and if the money isn't there then you are going back into debt.
In your situation with your partner paying, it's a lucky situation as he is acting as your emergency fund.As you say, if any 'emergency change' happened there, then you would up the creek.
Most people who know about getting out of debt, would suspend all overpayments until you can build an emergency fund of probably at least £500. It's what's been tested and what works. Then once you're there, you are back on your debts, and if you want when you are down to your last £500 in debt, use the emergency fund to pay it off, so you are not losing much in terms of time. 

MidsHollie

This is a great post, thank you. 
I've only been on my debt journey for a few months. I now have a £500 EF, which I have already used once to fix a minor car problem that risked becoming much worse and costing much more. Normally I would have put this kind of spend off and probably ended up spending more. The EF basically gave me permission to spend the money without really worrying about it.
I'm not sure if this is the right place to ask, but I'm curious how much people would recommend as a started EF whilst paying off debt? I have a stable job, and its very very unlikely I would ever get laid off. I have a fairly new house, so wouldn't expect major expenses here. I currently have a £500 EF, and safe for annual expenses such as car maintenance etc. Do people think that this is adequate as a starter EF? Or should I save more?

Fireflyaway

Great post ! Getting together an emergency fund is my new target. I don't want to always be living payday to payday or having to live uncomfortably if something goes wrong or ask my parents if things go wrong. I want to be independent and feel secure. If you have cash put away it gives you so much more freedom and peace of mind. You never know what's round the corner. I never dreamed a virus would have us confined to home, people dying, losing jobs etc! 

DireEmblem

Great post, but some things not discussed:

1. Why is it recommended an emergency fund should be enough to cover 6 months expenses?
2. How do you ensure that your emergency fund works for you?

I generally agree with the 6 months in the first point - having 6 months can bring huge peace of mind and take a lot of weight off your shoulders should something unexpected happen.  
For the second point, UK inflation has averaged 2.55% over the past 10 years, yet interest rates have hovered under 0.5%.  Taking a simplistic view, holding your emergency fund in an easy access cash account, it lose you 20% in value over 10 years.

lordmountararat

Great post. This is the rainy day for which we've all supposed to be saving.

bexster1975

Hello.  This a great post, and I couldn't agree more. A couple of comments based on reading the thread. It is recommended that 3-6 months of expenses is an ideal emergency fund. I think this is really subjective as it depends on your employment status, job security, whether you are the sole earner in a household, do you have dependents etc. It's really designed to cover an unexpected situation ( illness, job loss etc.). Probably never considered a global viral pandemic, but the idea is the same. I think  £1,000 EF is ambitious, as I am not sure it would pay essential bills for long. But as someone else suggested anything is better than nothing. I'd also say, based on conversations, that not having unsecured debt right up to the level of your income would be at least as useful as an EF. People seem to borrow so much money that they can just make minimum payments within their current salary and many don't see this as struggling. It's quite terrifying to be honest. For anyone who does not have an emergency fund, and/or has high debts I would suggest using the time (if you have it currently), the support and advice on this board, and contacting creditors sooner rather than later to enable you to take control of any financial difficulty you find yourself in. 
Thank you for this thread, I am glad it was received in the spirit it was written, I can see why you might have worried it would be taken the wrong way.

Bexster