Working Parents: What are your plans for Emergency Funds?

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A question for all you working parents out there: how long would your finances last if you lost your job tomorrow?

According to a news story from the end of last year, over one in three households in the UK wouldn’t make it through the month in the event of a job loss. And there are currently over 16.5 million adults in the country who have no savings whatsoever. Alarming statistics, right? And if you ever go through hard financial times, the results could well be devastating – including losing the roof over your head.

With this in mind, it has never been more important to build an emergency fund to give your family an extra layer of protection. The big question for today is – how in the world are you going to do it? When you are living from paycheque to paycheque, as so many families do these days, it can seem impossible to save anything – never mind the six months of income that financial experts believe you need to be safe. We certainly don’t have it, but we’re working on ideas to change that and I’ve made a start. 

So, if you are struggling to see where you can find the money to put into an emergency fund, read on. I’ve pulled together a whole bunch of ideas that can show you how it is possible to build up a decent amount of money that will give your family the protection it needs should the worst happen and someone loses their job. Let’s get started with the basics.

What is an emergency fund?

While most households in the country might have savings put aside, many don’t have an emergency fund,. It’s an account set aside for all those incredibly expensive dilemmas that can occur from time to time – and always seem to happen when you can least afford it.

Emergency funds will give you room to breathe if you lose your job, or suffer from a long-term illness. They can also cover significant expenses – a boiler breaking, for example, or a new car if your old one breaks down.

As I mentioned above, most financial experts recommend that your emergency fund should be around six months of your current income levels, which could be enough to see you through murky financial waters. And while that seems like a huge sum of money – half your household’s annual income – it is not impossible if you set yourself the right targets over a couple of years.

Let’s take a look at some of the things you might try and do to build your emergency fund to an acceptable and safe level.

Find your bare minimum

For the time being, forget about the lofty goal of putting aside half your annual income. It’s a huge ask when you are just starting out, and it will seem intimidating – and impossible. The chances are that you will start thinking there is no way you will achieve it, and derail yourself within the first couple of months.

So, the first step is to find the absolute minimum you can afford to set aside for emergencies. As with any other savings plan, this will involve looking at your incomings and outgoings in minute detail. How much are you spending on food each month? How much do you set aside for utility bills, entertainment, and clothing for the kids?

Once you have recorded all your expenses, any money left over is available for saving. It doesn’t matter how small the amount is – even if you can put aside £25 a week, you will have a £250 emergency fund available to you well within three months. And if you can put aside £40 per week, that three months will give you £500 – not a bad haul when you are just starting out. If you have a particular goal in mind like a new bathroom, holiday or car, this tool can be useful to evaluate your chances of getting finance for your needs. 

The point is, if you start putting it away into your emergency fund at the beginning of the week or month, you won’t be able to spend it on unnecessary expenses. When you go shopping, you’ll have to be strict about sticking to your list, rather than plucking products from the shelves just because you fancy them. (For tips on saving while you shop, click here)

If you have set aside some money for a coffee at Starbucks each week, that’s fine – but you won’t have the money to top up that coffee with a cake or a pastry. It’s just about being careful and trying to live within your means. And once you have that minimum amount, you can start to think about growing it.

Check your taxes

There are many people out there who are paying too much tax ad don’t even realise it. You might be entitled to a uniform tax rebate, for example. There are also plenty of stories of healthcare students receiving backdated tax and national insurance payments because they were wrongly taxed while in full-time education.

Tax credits, relief on pension payments, tax allowances for spouses – there is a huge range of relief available for many working people which they don’t know about. You can either research these yourself on the HMRC website or speak to a specialist tax adviser.

Yes, a tax expert will cost you a lot of money, but the amount they will save you will dwarf that in comparison. And the joy of claiming back tax is that every penny that is returned can go straight into your emergency fund.

Cut household and fuel costs

OK, so you are now paying a minimum amount of money into an emergency fund, but it could be years before you save enough to match a month’s wages, let alone six. You have to boost that fund, and the good news is that there are plenty of ways of doing it.

Start by looking at all of your bills. Are there any ways you could save on your monthly expenses by looking at your consumption? Making sure that your home is run efficiently can save you hundreds of pounds every year.

Could you save some money by switching your gas and electricity providers? It only costs you a phone call or the time it takes to fill out an online form, and you could save yourself anything from £30 per month upwards – all of which could go straight into your emergency fund.

It’s the same with your insurance costs and banking charges – shopping around for new deals can save you plenty of money each month.

What about car fuel costs? Could you trade using your car for a bike instead, and save all the costs of travelling to and from work? Maybe you could set up a carpool with three or four coworkers, which can save you a small fortune on travel.

Look at unnecessary bills

The next step is to identify anything you are spending money on that is unnecessary. Do you really need to spend £100+ on Sky TV, for example, when services like Netflix and Amazon Prime are so much cheaper?

Check your bank account and find any payments that you can’t justify because you never use them – gym membership is a common culprit, as are magazine and newspaper subscriptions if you never get to read them. Look for mobile phone insurance, too – they are often barely worth the paper the are written on, and almost never pay out, if they do, they have large excesses, which means you may as well pay for the repair or a new phone.

On the subject of mobile phones, are you always looking for the latest and greatest smartphone upgrades? The truth is that you will be paying an extra £20-30 per month just for having a new phone. SIM-only contracts can be picked up for a tiny fraction of the price if you are happy to keep your own phone on the go for a while.

While all these little payments might seem negligible when you look at them alone, combine them together, and it’s a heck of a lot of money. In fact, if you work hard at cutting your costs, you can easily get to a three-figure sum – and that will be a huge boost for your emergency fund. As you can see, that elusive six months worth of income isn’t seeming so impossible now, is it?

Baby steps

While all these tips sound great on paper, I’m not going to say the process is easy. It’s going to take massive amounts of discipline to pull off, and even when you have reached a level of saving £200-300 a month, six months worth of savings is still a long way off.

It’s important, then, that you take baby steps throughout the entire process. Set up easily achievable milestones along the way – aim for one month of savings, first, and then move onto the next level.

Of course, there will always be times when you need to dip into that fund – it’s for emergencies, after all. But the point is because you are saving specifically for a financial event of urgency, you will have the funds to pay it without impacting your lifestyle. You are drawing from a  buffer, not your monthly wage or – even worse – a credit card. And it won’t take you too long to pay back into the fund after the event – because you can already afford to do so. Good luck!

 

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