How to maintain an emergency fund

How to maintain or rebuild refill an Emergency Fund Penny Golightly

Once you’ve created an emergency fund for yourself, you need to look after it. That means not dipping into it for non-emergency spending, and maintaining and checking it from time to time. Don’t take your eye off the ball and forget about it.

Monitoring the interest rate

One thing that many of us fail to do is to keep checking the interest rate that’s being paid on our savings. You need to regularly monitor the interest that’s offered to make sure that the rate doesn’t drop too low, otherwise you’ll find that inflation starts to erode your spending power. It’s a good idea to check regularly for drops in the rate you’re being offered, and for the availability of better deals.

You could check your current interest rate and the state of the rest of the savings market every few months or so, perhaps also adding an alert to your calendar or diary. An easier alternative is to register for the free rate tracker alert service at Savings Champion, where these types of changes will trigger an email letting you know about better deals. There’s less chance of forgetting to check when you use an automated method like this, although do remember to make sure that any alternatives offered are truly instant access savings accounts.

Keeping up with changing circumstances

If you follow the general rule of thumb that your emergency fund should contain about three to six months of basic living expenses, remember that this figure can alter if your circumstances change. For example, your basic monthly living expenses could increase if your family grows, if you buy a larger home and end up with a bigger mortgage, or you take on other extra responsibilities. Similarly, you could get a promotion or a better job, and your monthly income might rise. These are both scenarios where you might want to top up your emergency fund a little.

It’s also a good idea to opt for a larger emergency fund if the nature of your employment changes, or becomes more risky, whether that’s a hostile takeover of the company you work for, setting up your own company or going freelance.

Rebuilding after an emergency

If you’ve had to dip into your emergency fund for whatever reason, it’s wise to start rebuilding it as soon as your finances have stabilised. After all, emergencies are random and unpredictable by their very nature, so another stroke of bad luck might appear sooner rather than later. If your savings have been completely wiped out, try to get a buffer of, say, £500 or so together as soon as you can, since this amount will usually cover a broken home appliance, basic car repairs, or an unexpectedly large utilities bill.

If there’s no spare money, look back through our recent article about ways to quickly create a pot of savings when there’s no room in your everyday budget, and give one or more of the ideas a try.

Do you have any emergency savings? Have you checked them recently?


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