Emergency Fund vs Savings vs 0% debt - how to balance

ChasingtheWelshdream

I'm just looking for a bit of a sanity check really, and the general consensus.

We have finally - through second jobs/overtime/exhaustion - got ourselves in a place where we are finally out of our chronic overdraft for the first time in months, with a healthy budget to last until payday. Next month - and beyond - we should have a regular income that will allow us to start making savings and tackle the last bit of our debt. We've got an SOA that will probably need tweaking, but we have over-estimated rather than under and things are looking OK. I've just allocated funds to every pot I can think of - except for an emergency fund.

We have £2500 (ish) on a 0% credit card, running until May 2025.

My work contract is fixed-term until March 2025. (Likely to be renewed but I don't want to jinx it, and I would also get a decent settlement pay-off if it doesn't. I am not overly worried due to the nature of my employment, but should keep it in mind.)

We have no savings (except for the various money pots we have created for all our spends).

Our SOA says we should now have £400 surplus each month, which we are on track for.

We have some urgent-ish households spends to make, which are not yet accounted for, and this is where I am struggling to decide how to divvy up that £400. Two appliances need replacing (making do with a temporary fridge, and the washing machine is getting rather temperamental), the bathroom needs repair/replacing (think buckets to stop the leaks, but we will be DIYing most of the work).

We can make do with the appliances for another 3-4 months I think, and the bathroom has been like it for so long already, there is no urgency but it is getting us down.

Would the hive collective think the monthly £400 is best thrown at the credit card so that the balance is cleared before the 0% runs out? 

Ignore the 0% (we will probably get another offer when it finishes, I regularly get them on unused cards, but don't need to utilise at the moment) and save up to cover the bathroom/appliances?

Ignore everything above and build up an emergency fund in case of my contract being terminated?

Or a mix of all three?


I will add we both have other income streams which have been discounted for budgeting purposes as they are not a fixed sum each month. We can potentially bring in another £800 a month through side-hustles now our overdraft is gone. But not guaranteed, and we keep that in reserve for business need at present.

So yeah. Just generally looking for opinions please. It has been a long time getting to this situation, and although we are not yet debt free, it is the first time I've felt some breathing space. 

MFWannabe

Personally I’d start the emergency fund. Build that up to whatever you decide is comfortable then if one of the appliances does pack up you can afford another without getting into debt 

kimwp

I think I'd also opt for saving the £400 into an emergency fund. If your contract gets renewed, you can then start saving towards new appliances and bathroom fix.
If it doesn't get renewed, you've got £4k savings and settlement to cover outgoings until you find another job.

I'm not sure what you mean about keeping the additional £800 for business need, could you save some of this towards fixing your bathroom?

ChasingtheWelshdream

Thanks both.

The business income depends on how things go in any given month. My own business has a fixed outgoings each month, so I am building a reserve buffer in case of a quiet periods before I start paying myself.

I also do overtime which is not included in our SOA (again as not guaranteed), and I will be putting this by for DIY funds.

So an emergency fund is looking the best way to go then. If my contract is not renewed I would be entitled to approx £5k settlement, but I would still rather remain employed.

This is where it is hard to not think 'oh, we can start getting the bathroom done', and realise we need that emergency fund first. 

kimwp

ChasingtheWelshdream said:

Thanks both.

The business income depends on how things go in any given month. My own business has a fixed outgoings each month, so I am building a reserve buffer in case of a quiet periods before I start paying myself.

I also do overtime which is not included in our SOA (again as not guaranteed), and I will be putting this by for DIY funds.

So an emergency fund is looking the best way to go then. If my contract is not renewed I would be entitled to approx £5k settlement, but I would still rather remain employed.

This is where it is hard to not think 'oh, we can start getting the bathroom done', and realise we need that emergency fund first. 

That makes sense re the reserve buffer for your business outgoings.

Super hard if the bathroom is getting you down, but you are on your way to being financially secure and in a position in a few years to have a big savings pot (in addition to your emergency fund) to spend on whatever you like. Just check that the leaks aren't building up a bigger problem.

Just re-read your first post - you said the appliances won't last more than 3-4 months- you need to factor buying new ones in into your plan. So -

- £400 to emergency fund (set up a specific savings account for this)- not to be touched except for unavoidable urgent expense. Aim to build this to 6-12 months essential outgoings and top it back up to this if used.
- Overtime pay to appliance fund and then bathroom DIY.

ChasingtheWelshdream

kimwp said:

Super hard if the bathroom is getting you down, 

That made me laugh as the whole house is getting us down    as so much has needed doing for so long but the bathroom is getting more urgent month by month. It is a case where we could fix relatively quickly and cheaply, but really needs a proper investment and doing properly.

What is the opinion on the 0%? We've been paying the minimum amount via DD, but I don't want to get to a point where we suddenly hit lots of interest in May. I suspect I would get another 0% but don't want to assume. 

Would it be more prudent to divide the balance and aim to pay if off fully in May?

kimwp

ChasingtheWelshdream said:

kimwp said:

Super hard if the bathroom is getting you down, 

That made me laugh as the whole house is getting us down    as so much has needed doing for so long but the bathroom is getting more urgent month by month. It is a case where we could fix relatively quickly and cheaply, but really needs a proper investment and doing properly.

What is the opinion on the 0%? We've been paying the minimum amount via DD, but I don't want to get to a point where we suddenly hit lots of interest in May. I suspect I would get another 0% but don't want to assume. 

Would it be more prudent to divide the balance and aim to pay if off fully in May?

Glad to hear you can laugh at the situation, that's what will carry you through 🙂 

The 0% is a gamble. If your job wasn't at (hopefully no) risk, given that you have access to credit, then I would be saying pay off the debt before saving an emergency fund. Why don't you consider the situation where your contract is terminated and decide what to do on that basis? My thinking is that even if you couldn't get a new 0% (don't forget to apply for this ahead of contract decisions), you'd be in a situation of having a fund to cover the min payments and essential outgoings until you have a new job. If you had paid off the debt, then you wouldn't have debt, but also couldn't cover essential outgoings. If all goes to plan and your contract is renewed, but can't get a new 0% and the interest on the credit card debt is astronomical, you can use your fund to pay it down.

ChasingtheWelshdream

Thank you all, definitely food for thought. Following another thread I have going about building up our money pots, this is the direction we will probably go. 

Any overtime is going to go into the bathroom/DIY fund.

The £400 will be split with a little going into an appliance fund, based on the models we would like to buy and how long we think they will last.

A little will go to the emergency fund, which we will put in a linked savings account.

The rest will go into a separate 'pot', which can be used to cover some upcoming costs we know of (car servicing/birthdays) where the current pots do not yet have enough built up. So we won't derail any of our other pots by having to dip in to them. 

So the emergency fund won't grow as quickly, but we know any imminent costs are going to be covered and within budget. As I say, if my contract isn't renewed I can expect around £5k settlement so wouldn't be left high and dry. Not that I want to be let go, but always have to be practical.

theoretica

If you save as much as you can, you can then look at the situation again later and reevaluate whether to pay off the card or spend the money on the bathroom. 

kimwp

ChasingtheWelshdream said:

Thank you all, definitely food for thought. Following another thread I have going about building up our money pots, this is the direction we will probably go. 

Any overtime is going to go into the bathroom/DIY fund.

The £400 will be split with a little going into an appliance fund, based on the models we would like to buy and how long we think they will last.

A little will go to the emergency fund, which we will put in a linked savings account.

The rest will go into a separate 'pot', which can be used to cover some upcoming costs we know of (car servicing/birthdays) where the current pots do not yet have enough built up. So we won't derail any of our other pots by having to dip in to them. 

So the emergency fund won't grow as quickly, but we know any imminent costs are going to be covered and within budget. As I say, if my contract isn't renewed I can expect around £5k settlement so wouldn't be left high and dry. Not that I want to be let go, but always have to be practical.

Sounds good 👍