Do we need an emergency fund?

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Hello Dear Reader,

I never used to be a saver and that, all those years ago, is precisely why we got into debt! If we ever needed something such as a car, washing machine or bed then we didn’t have anything saved to buy it. As you may or may not know (where have you been?) we were very much in debt in a previous life, changed our ways, paid every penny back and haven’t owed anything except our mortgage ever since.

You would have thought we’d have learned our lessons many years ago as in the twenty one years DB and I have been together, he’s been made redundant once and faced redundancy twice since then and luckily dodged it ever again. When he was made redundant back in 1998, we’d only just bought our first house and had a sensible little mortgage and were able to pay our bills on my part time earnings and DB’s redundancy payout until he managed to get another job. In the current times, redundancy payouts are no where near as generous as they used to be and if either of us lost our jobs, we’d have only weeks of salary and it would be very difficult for either of us to get similar full time jobs with contracts. So, like everyone in a financially precarious world we knew we had to build an emergency fund.

We had to start by looking at how much money we’d need based on how long it might take us to find similarly paid jobs. In reality, it could take a year to find jobs of the same financial parity if at all and it would be unlikely that we’d ever save a year’s joint after tax salary but what we could do was to save three months joint after tax salary.  It’s not impossible but not as easy as it sounds either.

We started off by simply working out how much we could afford to save and then set up a standing order on pay day to a savings account. We then, once it was gone every month, didn’t count that as income, it was just the money we saved. We looked at every aspect of our expenditure and looked at where we could shave off a few quid here and there and soon were able to add that to our savings each month. After six years of being debt free, we are used to only spending cash so what ever we need comes out of our short term savings, instead of our long term which goes to form our emergency fund. There have been times we’ve dipped into our emergency fund. Our boiler was on its last legs and were told on the annual maintenance inspection that it wouldn’t see us through another winter. It cost us £1600 to have a new boiler and have it installed and as no one has that sitting in their purse, we had to dip into our emergency fund and then return to being oh so frugal to save the money up again. I can turn into Mrs Penny pincher very easily and go round turning the lights out and making sure we have quick warm and not long hot showers. Need must!

The hardest part is maintaining the momentum to keep saving as you don’t save that much money over night and you just have to keep going……………..for years, until you get there. When I advise anyone who asks, I always get them to make easy and difficult savings.

The easy savings are ensuring you have the best deals on energy, insurances, home phone and mobile phone tariffs and food costs by switching to a value supermarket. Then comes the bits and bobs of savings. Do you need Sky TV? a gym subscription? magazine subscription? club memberships? Next comes the tricky (for some but not for others) savings where you look at your lifestyle. Do you need to buy so many clothes? Do you need to go to the hairdressers so often? Do you need to spend so much on going out? Can you find a cheaper way? When I wore makeup, I bought it from Aldi, Superdrug and even Poundland. I buy lots of my clothes, not that I buy a lot, from charity shops and get any ‘posh’ I need from supermarkets – I love Tu clothes from Sainsbury’s and keep my eyes open for the half priced rails. We made very stern decisions to put nothing in the way of saving and just put our heads down until we got there.

All that being said, I still had days when I was utterly pissed off with it all and could have easily spent the lot of new dresses, a hair do, lipstick and a fancy night out. I didn’t but it didn’t stop me wanting it all. We’ve managed to do without spending on major items by using freecycle, the come and collect it for nothing ads in freeads and gumtree so we replaced the dishwasher, fridge and freezer for nothing and get anything else we might need from local charity shops such as a coffee machine – £3 and kettle £2 so we don’t spend much even when we have to.

Also, don’t let the low interest rate put you off savings. Most accounts offer 0.5% which isn’t worth getting excited about but the important thing to do is to start the habit of saving regularly. We are not in the position to lock our savings away into a long term ISA, where we’d only get, at best, 2% if we added to that account monthly and then gave six months interest if we needed the money. It’s called an emergency fund for a reason, such as the car failing its MOT or a massive dental bill. It’s peace of mind to us that we can pay a big bill if one ever arose. Now we top up our emergency fund and when it’s reached what we believe to be a safe limit, we divert subsequent months of savings into short terms savings for ferry trips, house renovations, dog/car and self maintenance and big expensive items such as new walking boots or winter coats.

Now, it’s your turn. Do you think we all need an emergency fund? If so, how many months do you think we need? Are we being overly optimistic by only saving three months in an emergency fund? Also, what does constitute a financial emergency?

Until tomorrow,

Love Frooogs xxxx

 

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22 thoughts on “Do we need an emergency fund?

  1. Yes! Everyone need’s an emergency fund. I think 3 months is great but anything you can add to it on top is even better as you just never know 🙈 i class emergency as breaks, accidents and job cuts. We are trying to save up for a house deposit so emergency fund is a must as to not touch the deposit. Any advice as I am a first time buyer?

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  2. A true emergency would be as you described: replacement of a necessary mechanical, a car mechanical emergency/breakdown as it would impact your transportation to work, a medical bill. New dress for the holidays, a spa day, dinner/coffee what have you out-even a take away is not a reason to get into debt. I should add, nor are the Winter holidays. Great post.

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  3. Hi Frugal Queen. I think I’ve found a kindred spirit!
    Yes, I totally think we all need an emergency fund. We’ve ALMOST completed six months of VITAL expenses, though we had a set back in September and October with huge car repairs and THEN a new (used) car! Ugh.
    I’ve been unable to work for the past three years and so only receive a small government benefit. My husband is on a pretty low wage, so we felt that we needed six months saved, but if you’re both working, three months is probably fine, in my humble opinion.
    Anyway, I enjoyed this post. I wrote a post about emergency funds. I don’t want to be presumptuous and post a link, but if you’re interested in reading it, then please let me know.
    Frugal on! 🙂

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  4. Admit I don’t feel comfortable!. Should as the mortgage was paid off last month. But have only one months salary in savings!.mortgage paid 14 years early single lady. Do not know how to spend money on me

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  5. Yes you do need an emergency fund otherwise I don’t know how you would manage if something broke down or needed replacing.

    Our dishwasher needed replacing last month and the month before my husband needed major dental work and our emergency fund covered both and we are now in the process of replenishing our emergency fund.

    Without this cash, I guess we would have had to resort to using our credit card which is not ideal.

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  6. Last time my husband was out of work it was 9 months. I do not work outside our home so it was our only income that was lost. I had always thought 6 months was minimum but that changed my mind. We did make it through but that situation proved that you need more than you think.

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  7. Absolutely everyone needs an emergency fund and I think the minimum is 3 months living expenses. Even if you can only put away 5 or 10 dollars a week it adds up over the year and is better than nothing when something breaks down.

    Imagine you suddenly find you cannot live in your house due to a fire, your animals have to be kennelled and you don’t have so much as a toothbrush or a loaf of bread to take with you. Then your insurance company takes two weeks to send you the ‘immediate emergency’ funds you are entitled to. This actually happened to me last November!

    Without some money put aside I just do not know how I would have managed. I had to find accomodation and buy all of our immediate needs – food, toiletries, sheets etc…People were incredibly kind, but the reality is you also need some dosh. The other thing that made it easier was having no debt as I was unable to work for 3 months after the fire. Whilst most people won’t go through this kind of emergency, a series of smaller catastrophes can unravel you just as easily.

    Madeleine

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  8. I think how much you need in savings depends on your situation. We have no debt. Even our house is paid off so we wouldn’t need as much as others. We have savings for retirement but could use it for emergencies, too.

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  9. I agree that 3 months is a minimum, more is always good. Emergencies for us are medical, dental and must do house or car repairs. Hubby is retired so even car repairs can be put off a little as we can get by on the one car rather than two. Cash is a big help on budgeting.

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  10. Yes every family definitely needs an emergency fund – no matter how small. We learned through experience many years ago – husband in the construction industry and winter used to bring about some work shortages and my part-time earnings took us over the threshold of being able to claim any help. Hence, credit cards resorted to and mortgage payments missed to cover the cost of Christmas!! Crazy I know! Took many years to clear those credit card bills and haven’t had one now for at least 10 years. An ideal emergency fund in my opinion would be £500 – but this obviously depends on each family’s circumstances. (We have no mortgage now which is a great help – although how we managed to keep it up back in those dark days is a miracle!)

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  11. Definitely. Only one in the family who had enough money to pay for funerals for the unexpected bereavements. Glad to be able to do this and provide dignity for loved ones but astonished to hear that it was lucky that I could help!!!. Luck my eye, I saved diligently and still do.

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  12. Yes most definitely I am a saver, partner isn’t really, we both have the same monthly amount as spends but I tend to save mine, so my isa is our emergency fund so to speak, this paid for a new boiler which broke down last January a very large expense and we couldn’t do without. It was with a small company who wouldn’t have been able to take a credit card, so would have been stuck. luckily life insurances paid out this year and paid me back thank goodness so back to rights. But yes with our jobs being so precarious at the moment, partners zero hour, ive just lost my pt one again and looking, an emergency fund is needed greatly.

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  13. Not paying the mortgage to pay for xmas would be void in my home, I just wouldn’t go there, there is just no need, its only a day, our decorations come out each year, cards I have too many to use up as it is and now don’t send many. Kids would have limited amount of pressies, we could go without or just small stuff. I find Christmas a mad merry go round, went around Wyevale the other day there was a piece of polysterene, shaped like a bow tie, large, with a rough paint around the middle, really naff for £5 it was terrible.

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    • It was a last resort – honestly! – we had no savings and no other money. We were heavily in debt – a repayment holiday was agreed with our lender. We didn’t fritter the money – it paid for a modest Christmas for our children and kept us going until January pay day – my husband’s Christmas holidays were unpaid and he had no choice but to take them due to construction sites closing down for the Christmas period. Whenever we didn’t use this method of “living”, we would put the car up for sale for Christmas instead! No new cars here – ever – always second hand, so no car finance or HP to consider. In those days (1993 to about 2000) we felt it was needs must.

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      • The rules about mortgage holidays seem to have changed recently. My husband became ill and we were living on Statutory Sick Pay at around £82 per week. We had overpayed our mortgage regularly for years and knew that our mortgage deal allowed for mortgage holidays. When I phoned our mortgage provider to request one, it was turned down on the grounds that they couldn’t take the chance that my husband would be returning to work in the near future. I was also informed that a mortgage holiday is simply added to the outstanding debt, thus increasing future repayments and that it would go against our credit rating. No one tells you that when they offer you a mortgage! I have decided not to overpay our mortgage again until we have at least twelve months living expenses in an emergency fund. Once you overpay your mortgage, you can’t get it back if you’re in trouble. Better to have a few months mortgage payments in a savings account with instant access; that way, you can keep making payments if off sick, lose your job etc. We had mortgage protection insurance but we’re also turned down for that as my husband’s illness was seen to be a pre-existing condition!

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  14. Everyone should have an emergency fund. Now that I find myself on my own again with 2 dogs and a 17 year old car I am putting by what I can every month even if it’s only a tenner for any emergencies, MOT, vet bills (have pet insurance just in case), heating oil and firewood. Once the bills are paid and I’ve accounted for petrol and food (no great luxuries) I’m stashing the cash in an internet savings account. Any windfalls or money made from ebay etc will go in that account. I don’t have the SO or family to fall back on anymore so I need to be prepared and I don’t want and can’t afford debt

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  15. Emergency funds are essential for piece of mind. We have 3 months worth of bills saved for, after that a critical health insurance policy kicks in. We always have more than the 3 months, although we are going to use the ‘extra’ this month to make our annual overpayment to the mortgage. Then it’s back to increasing the savings to pay off the 0% interest car loan next year. Following that, we’ll start to put money aside for a new car (although this one should remain reliable for a few more years) and the 2018 mortgage overpayment.

    We weren’t sensible with our money when we were younger but we are committed to paying off our car loan and mortgage ASAP whilst still retaining an emergency fund.

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  16. Early in my working life I only had short term contract work and a mortgage. I learnt quickly that I had to put everything into reducing the mortgage as quickly as possible. In later years, my partner faced two life threatening medical conditions as well as other conditions, and, one of our children had ongoing support needs that required intensive therapy. We lived life on the financial edge even though we did not have debt. More recently, first my partner faced retrenchment and now me. We know that we are too old to get work easily in an environment that favours the young. We have lived frugally all our lives and saved as much as we possibly could. We will work for as long as we can but if our jobs were to go tomorrow we know we would not fall into a financial heap. Always, always have an emergency fund to fall back on and get rid of debt fast. For me its 12 months savings but understandably I am conservative given the challenges we have faced. I would add, never ever borrow money to buy life’s luxuries and non-essentials. At the end of the day when we are old and frail it really won’t matter if we didn’t go on that cruise or drove that fancy car or had a new wardrobe of clothes every season.

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  17. An emergency fund is essential! When the husband of my friend was unemployed for 2 months in between jobs she didn’t know how to pay her bills. She was so miserable and feared of losing her house, didn’t be able to feed her children and all I had to do was going to my account and giving her my emergency fund to relieve her pain. She insisted to pay it back, but you heard the stone falling from her heart. And it was so easy to help her! And yes – she paid it back although I always say: “Don’t lend money you aren’t willing to give as a gift.”

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