Next steps after creating an emergency fund
We’ve looked at why you need an emergency fund, how to create an emergency fund, making emergency funds from nothing, and how to maintain an emergency fund – now let’s look at what to do when your emergency fund is full.
What are your next steps, once you have an emergency fund in place?
If you’ve hit your target for emergency savings, don’t keep paying into them. Take the surplus money and find a better home for it, as well as continuing to make sure that you have the right insurance for your particular needs.
What can you do with this new money? If you’ve started living on a budget, you’ve paid off debts, and you have an emergency fund in place, it’s time to think about the future and stepping one rung further up the ladder to financial security and even to a relative feeling of wealth.
The extra cash can go towards short term, medium term and longer term projects, as well as retirement funds.
For example, you could consider:
- A household maintenance fund (cash) for things you know you’ll probably have to pay for in the next few weeks and months. For example, new kitchen appliances, car servicing, decorating, boiler maintenance and so on.
- A Christmas fund (cash), because you know it’s coming and therefore it isn’t an emergency…
- A holiday fund (cash), so you don’t go into debt by taking a break. It’s called a well-earned break for a reason, right?
- A slush fund for business expenses if you’re self employed.
- Seed money for a project or side hustle (cash), because sometimes you need money to make money.
- Longer term cash savings or bonds, for a better interest rate on funds you won’t need to get at in a hurry.
- Investments, property and pensions. More risky potentially, but much better chance of good returns in the long run.
Whatever you decide to do, make sure any cash savings are earning a good rate of interest, and you haven’t locked the money away for years if it’s likely to be needed in the next few months.
What will you be saving up for next? Any big plans or dreams you’re hoping to fund?