Reasons to have an emergency fund

An emergency fund is a lifeline for many people, no matter what your age! If you haven’t got an emergency fund then why not? We know it can be hard to save up but putting away even just a little each month can be really beneficial. There’s no specific reason you need to set up an emergency fund. However, UK Car Finance have put together a list of the most popular reasons why you should have an emergency fund and how it can rescue you in certain life situations. Your emergency fund will usually be used for things that are unexpected in life, so stay ahead of the game and have a little tucked away for those rainy days!

Debt consolidation

According to a recent BBC report, up to 8.3 million people in the UK are unable to pay off debts. With this in mind, it’s a great idea to start saving to pay off your debts or save up for any unexpected debt. Having debt or money worries can be one of the most stressful things, especially if you have a busy household. Many people turn to credit cards or payday loans for unexpected expenses or emergencies, however this can often lead to more debt. Missed payments also have a massive impact on your personal credit score! There are many ways you can increase your credit score, however having an emergency fund is a great way to avoid debt and credit problems.

You are self employed

Being self-employed is great! You can choose your workload and hours and it gives you much more freedom. However, for some industries, being self-employed can mean a very varied work load. This is where an emergency fund can come in really handy! This way, you are less likely to feel the pinch if you are out of work. You may already know that a contract is coming to an end so this is the perfect opportunity to save up.

You have a savings goal

Your emergency fund may be an endless amount of money or you may have a specific number in mind. An emergency fund can also be used as a savings pot. Your savings pot may be there to save up for something you’ve always wanted, which can be really motivational! You may be saving up for something like a mortgage, holiday, car, wedding or just about anything!

Unexpected job loss

This is one of the biggest reasons you may need to have an emergency fund! Unexpected unemployment can be due to a number of factors such as redundancy, illness or company relocation. You could find yourself without a job without warning which is where your emergency find comes in. When receiving a steady stream of income, the general rule of thumb used to be to save enough to cover you for 3-6 months of unemployment.

Car trouble

For many people, their car is their lifeline! What would you do if your car unexpectedly broke down tomorrow? Would you have money to fix it? Could you go without your car for a few days while you come up with the cash? For many of us, an emergency fund would really help with car maintenance. Alternatively, you could use your emergency fund to rent a car while yours is off the road.

Home repairs

Just like car trouble, your house can cause you problems too. The most common causes of home expenses can include a broken boiler or burst pipe, which can be really costly. Most homeowners will have home insurance that covers the major expenses but there are lots of things that your insurance won’t cover. Meaning you’ll have to fork out for repairs yourself.

Reduce stress

As mentioned, money worries can cause you serious stress. Money Advisor found that 77% of UK residents admitted they are stressed about money and 14% said they worry about money every day. Knowing that you have a back-up plan in the form of an emergency fund can reduce stress. When something unexpected happens which you need to fork out for, it can completely throw you off! So, make sure you have a healthy emergency fund to fall back on. About the author: UK Car Finance are a leading car finance provider who aim to help as many people as possible get accepted for car finance. They help customers take back control of their car finance deal and get the best deal possible! Using their unique car finance calculator to work out your likely loan amount before you even apply!

Jerry Kirkham is an investment professional, and like every investment professional, he makes mistakes. Jerry encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at Essential Savings, or anywhere else Jerry may write is an invitation to buy or sell any particular security; at most, Jerry is handing out educated guesses as to what the markets may do.