Emergency savings – how much is enough?

Money Advice Service

Everyone should prepare for sudden expenses by regularly putting money aside for things like a broken washing machine or boiler – but there is such a thing as too much emergency cash. It’s best to split your savings, so you’re keeping some to hand for emergencies and putting the rest where it can work harder for you.

How to build up your fund

You want to get your emergency fund set up as soon as possible, but like with all savings, it’s best to keep to what you can afford and make sure to save regularly.

Saving smaller, regular amounts is often more effective than saving larger amounts now and again. This is because you get into the savings habit, and you’re not overcommitting too much money. It also lets you budget your spending from week to week or month to month more effectively.

If this isn’t possible, save what you can as regularly as you can. Every bit makes a big difference.

Read a transcript of this video

Just like you would save for a wedding or a new car, work out how much you need to put aside, and set up a savings standing order or Direct Debit for the right amount.

Visualising your end goal – whether you’re preparing yourself against a car breakdown or the oven breaking – will help you keep focused and on track as well. Keeping track with a chart up on the wall will also help.

If you have debts, you should also decide whether it’s better to pay them off first, or save and pay them back at the same time. Take a look at our Should you save or pay off loans and cards page to find out more.

If money is tight and you’re not sure you can save, there are some things you can try to see if you can free up some money:

If you’re still not sure, visit our What if you can’t afford to save? page 

Once you’ve met your target amount for the emergency fund, you might want to continue with the regular savings amount to fund other savings goals – you might well be used to this level of outgoings by then.

Looking for more information? Get started now by Setting your savings goal.

How much should I save?

You want to be able to pay for an unexpected repair, but it’s also important to have enough money for a few months in a sticky situation.

Say you lost your job or split up with your partner, and needed some time to get back on your feet – you’ll want a bit more than the cost of a new boiler or washing machine.

If money’s short, start small

For example, saving just £3 a day adds up to £1,095 over a year. As long as you’re getting into the savings habit, you’re making progress, and small sums quickly add up.

The rule of thumb

A good rule of thumb to give yourself a solid financial cushion is to have three months’ essential outgoings available in an instant access savings account. So if you lose your job, for example, it’ll help buy you three months to find a new one.

So, if you spend £1,000 a month on mortgage or rent, food, heating bills and other things you can’t live without, you should aim for £3,000 in emergency savings.

But, remember any amount saved will help you if you have to pay for something you weren’t expecting.

Working out how much for your current situation

You can also base the amount you think you’ll need on the expenses you think you might have to cover. Our unexpected expenses table, below, can help. This shows the most common expenses and how much they cost on average. So, if your car is getting old and has a couple of advisories from its MOT, you could factor in the figure of £1,341 into your emergency savings fund.

Expense Percentage of people who experienced this expense in the last 12 months Mean average cost
Car repair or replacement 29% £1,341
Opticians or glasses cost 15% £195
Technology breakdown 15% £294
Vet bills or pet costs 14% £248
Washing machine 13% £245
Lending to family or friends 12% £2,482
Emergency dentist bills 11% £285
Emergency home repairs 10% £607
Children costs, like school trips and replacement clothes 9% £224
Mobile phone breakdown 8% £120
Boiler repair or replacement 8% £973
Unscheduled events and weddings 7% £423
Tax bills 5% £1,110
Legal bills 4% £839
Other 3% £777
None of these 29%  

Source: Unexpected cost report – December 2013 Q10

These amounts might seem daunting at first. That’s why it’s important to break down your goals and take your time to save with manageable, smaller, regular amounts.

Other ways of dealing with unexpected costs

There are other ways of dealing with some of these expenses in addition to saving, such as getting things like insurance or warranties. Here’s where to find out more:

Read more about the different types of insurance 

What to do before you start saving for emergencies

It’s great that you’re starting to build up your emergency fund, but before you pile all your spare money into it, make sure you’re ready.

If you have:

  • credit card debt
  • unauthorised overdraft
  • Pay-day loans
  • Door-to-door lending or home credit
  • arrears on your mortgage repayments

it would be cheaper in the long run to pay these off first.

That means if you’re keeping up with mortgage repayments and any other credit you have is low cost, temporary or well under control, you should definitely be adding to your emergency fund.

This article is provided by the Money Advice Service.

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