Pre payday terror creeping up? Save yourself the nightmare.

By Natasha Culzac
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When a life crisis hits, having to scrape around for money isn't exactly fun. Build up an emergency fund to protect you.

Unforeseen catastrophes, like breaking your leg when you’re self employed or having your car pack in are bad enough as they are, without you being financially crippled as a result of trying to pay for them.

Getting an emergency fund together, a kind of financial safety net, helps to relieve the effects of these super irritating life events. A small savings pot will not only help you out when times go bad, but it’ll also be there for last minute joyful purchases like the birthday present you forgot, or the stag/hen do that suddenly needs paying for. To help you get the most bang for your buck, here's a piece on how apps can help you manage your finances. 

Three reasons why you need a contingency fund in your life:

For when life goes tits up

How’s this for crazy: between June and August 2016, 1,322 people a DAY reported that they had been made redundant. That’s no small figure. On a less serious note, from losing your phone on a night out, to an unexpected pregnancy, there’s no end to the scenarios which surprise and terrify us. It goes without saying that having a little emergency fund on the side can make all the difference.

Tom Drummond, 26, had built up a contingency fund of £1,000 when his second hand car’s cambelt snapped, causing so much damage to the engine that he needed a new car. He said: “It would have cost more to repair the car than to just get a new one. It’s lucky I had that cash saved because having a car is critical for my work – insurance doesn’t cover wear and tear like that. I bought another car two days later.”

For economic fluctuations

Without wanting to sound like a miserable old economist, the UK’s financial climate is pretty unstable at the moment. Just as we start to climb our way out of one recession, there’s incessant talk of another, this time Brexit-related. Financial crashes are always hard on low to middle earners and could mean the difference between having work one month and not the next.

For when you just want something

Say a brand new gadget takes your fancy, or in the face of a demotion you simply want to keep up the lifestyle you’ve been used to - how will you pay for it all? Adults in the UK already owe an average of £3,737 in loans and credit cards, so you can forget that. It’s time to reconfigure your finances!

Jennifer Twinnings, 44, says that when her husband went from working five days a week down to four, due to stress, they were glad they’d spent years accumulating £5,000 in an emergency fund.

“It enabled us to keep living and do the things we wanted to do,” she says. As the main breadwinner, the husband’s change in salary had a huge effect on the family’s disposable income. “It took us a while to adjust to not spending as much as before – we especially wanted to continue to go away. It’s good that we had it, but it didn’t take long for the money to dry up – we should have kept some back.”

So how do I build up an emergency fund?

Firstly, open the best performing savings account you can find, and set up a direct debit to transfer a set amount (perhaps 5% or 10%) of your salary, on pay day, each month to it.

Secondly, you could try to take advantage of cashback offers. Some credit cards offer a small amount of cashback as an incentive (while others offer rewards such as Sainsbury’s Nectar card points), but there are also cashback websites which literally deposit money back into your bank account if you purchase something via them. Try QuidCo or TopCashback. They are especially great if you’re buying an expensive item or something like a holiday or an insurance premium.

There are tonnes of other smaller things you can do every day to save up cash. For example:

- Shop around for a better deal on your household bills but save the difference each month.

Switching phone contacts to sim only.

- Before buying something online, always check discount code websites to see if there are any active promotional offers.

- Try monthly Entertainer offers for a 2for1 treats every month.

- Get freebies with latest free stuff.

- Empty your purse or wallet of small change into a jar every other day. This soon accumulates! Deposit it into your bank every other month.

- Get crafty and make birthday/anniversary/Christmas presents rather than buy them.

 

How much should I save up?

A good rule of thumb is to save three months’ worth of your outgoings to cover you should you experience a financial shock. So if your rent/mortgage, monthly bills and food shop totals £1,200, aim for £3,600 in an emergency fund.

Put it this way, if you saved just £3 a day by giving up your morning latte or cycling to work instead of getting the bus, you’d end up with £1,095 by the end of the year!

Top Takeaway

When the proverbial hits the fan an emergency fund can literally save your bacon. They’re tough to build up – you have to be really disciplined – but one day you might be really thankful you did. Open a separate savings account and start a direct debit to transfer a small chunk of money every payday. Remind yourself that this sum is not to be spent on anything flimsy, so if you’re wanting to save up for a holiday or a new wardrobe then this must be saved in yet a different account.

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