How to build an emergency cash buffer

Saving is likely to be one of the last things on many people’s minds during these troubling times.

Aside from coronavirus health worries, lots of people are having to cope with a sharp drop in income, or worse still the prospect of losing our jobs altogether, so trying to squirrel away cash at this time may well be near the bottom of the priority list.

However, with so much uncertainty about how things will unfold in the months to come, if at all possible, it makes sense to try and prepare as much as possible for financially tough times ahead.

But how exactly do you find spare cash to save when your budget already feels under strain? Experts recommend three to six months’ worth of income as the ideal amount to set aside, but for most people that will seem an impossible feat.

Even if you know there’s no way you’ll be able to afford to put this much away, the golden rule is that it’s better to try to save something rather than nothing, so that at least you have a bit of money to fall back on should you need it. Here are five ways to start building your emergency cash buffer.

Review your outgoings

If you’re finding it hard to save, see if you can make cutbacks to free up some spare cash.

For instance, two-fifths of us continue to pay for subscriptions we don’t use, worth £21 a month, according to research by cashback website Topcashback. So take a thorough look at your bank statements and highlight any direct debits leaving your account you’re unaware of, or subscriptions you no longer require.

Chances are that you’ll find at least one outgoing that slips through the net each month which you don’t make full use of – whether it’s streaming services, online newspapers, gym memberships or magazine subscriptions. If you’ve paid up-front for a subscription, you should be entitled to a refund on a pro-rata basis for any months remaining of the subscription period.

The key part? Keep a tally of how much you can cut back, and set up a standing order to move that money into a savings account each month.

Make sure you include your financial products in your audit. For example, could you cut your monthly mortgage payments by remortgaging, or save on your car insurance by shopping around?

Read our article 10 ways to cut costs to find out other ways you might be able to save.

Start small

It’s easy to think you’re not going to be able to afford to save anything if you’re on a tight budget. But there is great value in simply building a healthy savings habit, so that when you do have more income coming in, you’ll be used to putting money away regularly.

One way to get the ball rolling is to go try the good, old-fashioned way of sticking physical cash into a money box.

Whether it’s popping pound coins into a jar or filing away your £5 notes, any amount is a good start – just make sure that you deposit anything you’ve saved into a savings account every month so that you earn interest on it.

Savings rates are changing daily as a result of  the Bank of England’s base rate cut in March, but you can find the top rates currently available at Savingschampion.co.uk.

Regular savings accounts, which usually have a one-year term, often pay the highest returns, and require you to pay in a minimum amount each month. For example, Coventry Building Society’s regular savings account is open to everyone and pays 1.85%. You can pay in from as little as £1 a month, up to £500 and withdrawals are allowed, although you’ll lose 30 days’ interest each time you take money out. It’s also worth checking with your bank to see if they offer current account holders a linked regular savings account, as these typically pay the highest rates of interest. If you have a First Direct or HSBC current account, you’ll be eligible for regular savings rates of 2.75%, or 2% if you have a Lloyds current account.

Get smart about saving

Most adults in the UK check their smartphones 33 times a day, with more than two hours spent mindlessly scrolling and tapping.

But rather than endlessly looking at all the bad news on social media, you could use the device in your hand to improve your finances via an app such as Chip, Money Dashboard, Yolt or Emma.

Chip, for example, uses artificial intelligence to work out how much you can afford without to save by analysing your spending behaviour. Every few days, it automatically transfers money into a Chip account that you’re required to open when you sign up.

There’s no need to worry about your data – your login details are protected using 256-bit encryption, which is considered highly secure. The downside is that you don’t currently earn interest on the money saved via the app. Your money is stored as ‘e-money’ with a retail bank (currently Barclays) and is ring-fenced so that it’s not used for any trading activities. You can withdraw your money at any time.

It’s more important than ever to track down the best possible deals on everything you buy so that hopefully you’ll be able to save money that you can then direct into your emergency fund.

Although most of us will be reining in our spending during this difficult time, there are necessities we’ll always have to buy, such as food and household products.

Fortunately, when it comes to tracking down the best prices, there are plenty of websites which will do the hard work on your behalf. For example, Pricerunner.com enables you to hunt down the best prices on things you need to buy by comparing and listing over 1.6 million products from over 4,000 retailers. The cheapest price is listed first, and as the site is independent, you’ll have peace of mind that retailers can’t influence which products you’re shown. Another site, Kelkoo.co.uk, performs similar research on thousands of products, and claims to save shoppers an average of 15% on their purchases by helping find the lowest prices.

When you know what you want to buy online, always check to see if there is a discount voucher available which can get you money off your purchases too. Sites where you can see current voucher codes include Vouchercodes.co.uk and Groupon.co.uk. Simply enter the name of the retailer you’re buying from and these sites will let you know if there are any discounts available. You should also see if you can earn cashback on your spending via sites such as Quidco.com and Topcashback.co.uk.

Sell stuff

Selling items you no longer need can be a great way to generate cash for your emergency savings fund. Whilst you won’t be able to do this at a boot sale for the time being, there are plenty of websites which allow you to send off unwanted items. They then deposit payment for these items straight into your bank account.

Have a look around your home and make a pile of things you no longer need. For example, have you got any electrical gadgets such as iPods, digital cameras or laptops sitting gathering dust? If so, you can sell them via websites including Cashinyourgadgets.co.uk, Gadgetmill.co.uk and Gadgets2cash.com. You simply enter the make and model of the gadget and if you’re happy with the price, you can send it by freepost.

You can also sell items on www.ebay.co.uk or, if you don’t want to pay selling fees, via the boot style app Shpock.com which enables you to sell stuff free of charge.

You can read our full guide to find out more ways to Make cash from your clutter.

Remember…

Don’t worry if the amounts you’re able to put away during this difficult time seem small. Every little bit helps and even if you can only afford to save a small amount regularly, having any kind of buffer in place can provide valuable peace of mind.

Have you found any other ways to cut costs or build up your emergency savings? Email us your tips and suggestions at [email protected] or leave a comment below.

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