The Value of Building an Emergency Fund (EF)

Sharon87

I'm learning the importance of an emergency fund during this time. Most of my colleagues in the TV industry are struggling as all work has dried up except in a few circumstances, and about 90% of people are not eligible to be furloughed/get the self employment benefit as they either weren't employed on the payroll in February, their contracts came to a natural end or if they're self employed they may earn over 50k/year or they've not completed last years's tax return as they're new to self employment.

This means most people are only eligible for the sick pay of £95/week or universal credit (unless they have lots of savings of course). 

I'm lucky I'm still working for now, I will be furloughed in May for a bit. I've saved £1400 in a HTB ISA (which could be used for a house deposit if it doesn't get used in emergencies). It's in there as it's the highest interest easy access savings account I can find. I'll feel more comfortable with 2-3k of savings as living in London my rent is high!

Lucky for me my expenses have gone down - no transport, no restaurants, no pub. My grocery bill is a bit higher, but I'm still spending less money!

Willing2Learn

MidsHollie said:

...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?

I think that having a £500 EF whilst being on a debt-busting journey is perfectly fine.  I would probably still add £10/month to the EF so that it keeps growing 

DireEmblem said:

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?

Six months just seems like a good target to aim for as it would cover you against any unforseen, unexpected and budgeted EF expense.  On a personal level I have an illness that means I can only manage working for 8 months a year.  I don't claim SSP when I am ill, as I work for a charity and they need every penny.  The six months EF covers my needs perfectly.


Up until this financial year, I have been able to get the EF to work for me by depositing money each month in to several 5% regular saver accounts.  I also deposit money into current bank accounts that pay rewards or interest on credit balances.

bamgbost

All great advice here. And defo this COVID 19 situation has highlighted the importance of an EF. I am starting to build mines now!

Maff332020

Out of curiousity, you guys are mentioning 6 months worth of wages as emergency savings? Just so I am understanding this all better!.  

SuperFrank88

Maff332020 said:

Out of curiousity, you guys are mentioning 6 months worth of wages as emergency savings? Just so I am understanding this all better!.  

6 Months expenses