So you’ve made the usual New Year’s resolutions. You’ve resolved to go on a diet, take more exercise, take up a new hobby and stop drinking. And you’ve already you’ve broken the majority of them.
The wine’s back in the fridge and the vow to never eat chocolate again finished at half midnight on New Year’s Day. You were going to go for a brisk walk in the fresh air but the dog developed a limp and it was snowing outside, so you succumbed once again to the sanctuary of the sofa and Netflix.
Don’t feel so bad. It happens to most of us. Very often, resolutions can quickly become difficult to sustain. There’s a lot of pressure that comes along with keeping a resolution. One minor slip-up, and it can feel like it’s all come crashing down and there’s just no point to persevere with it.
There is, however, one resolution that you should make and keep this year; start an emergency fund.
Why you need an emergency fund
At this time of the year, some emergency always seems to crop up out of the blue and catch you off guard. It could be anything from the car packing up to something more serious, such as job loss.
Research we’ve carried out shows that a small amount of savings can stop an unexpected expense turning into a debt problem. Over half of the people we asked told us that emergency costs they had to pay could have been covered with savings of £300.
In other words, an emergency fund can help to stop the need to use credit to pay for unexpected expenses; they could help resolve the problem.
Nothing to do with the weather!
The unexpected can occur at any time, and it’s important to put some money aside in case of an emergency, to pay for bills just like this. You never know what may happen to your job, family or health, so it’s wise to be ready for the unknown.
A rainy day fund or an emergency fund is savings that you keep separate from any other accounts and only touch when a true emergency arises.
New ‘must have’ shoes in the January sales do not constitute an ‘emergency’. Neither does decorating the front room or buying a new sofa because the current one doesn’t match the wallpaper.
Determine how much you can afford to save
You’re probably thinking, “Yes, I agree, but putting something aside is impossible”. After all, you struggle to make ends meet as it is.
However, even if you don’t have much to save, it doesn’t matter. Even a small amount each month will soon add up.
Try to aim to save enough to cover at least three months’ worth of mortgage payments and priority bills. Don’t worry if you do not have this money immediately. Take time to build your fund up gradually.
Examples savings that could pay for an emergency fund
- Save your change: Don’t spend any small change you get but at the end of the day, empty your purse or pockets into a jar. Once a month go to the bank and put it into a savings account. You’ll be amazed how quickly it mounts up
- Open a separate savings account: At lot of people start emergency funds with good intentions, but then dip into it as soon as it starts to grow. Keep your emergency fund separate from your other accounts and only use the money in a true emergency. Make sure you can get at your money easily when you need it. Credit unions are becoming more and more popular as an alternative to high street banks.
- Cut back on unnecessary spending and put the money you save in the bank: Items such as weekly magazines, coffee on the way to work and meals out all add up. Keep a spending diary. Look at where your money is going and find things that can be cut back.
- Stop smoking: An obvious one but this would save you £8 a day (based on a 20-a-day habit) or a staggering £2920 over a year (and if there are two smokers in the family, double this).
Emergencies tend to crop up when you are least prepared. The majority of us will take out the already battered credit card and use this, but if you’re canny, you save now and save a lot of worry later.
Have you broken any of your New Year’s resolutions yet? Was starting an emergency fund one of them? We would love to hear your experiences!