Do we need an emergency fund?


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