Over the years it’s become increasingly apparent that my lack of personal savings have left me in a difficult situation. Situations which could have been alleviated or bypassed completely had it been for an emergency fund. I find saving money hard. But I also found living through those stressful situations hard, so last year I chose which hard I’d rather see again. Going through financial and emotional hardship taught me that creating an emergency fund is essential, not just a ‘nice to have’.
An emergency fund is separate from your savings fund
Let me start right here. Your emergency fund should be an entirely separate entity. Your savings fund may be something you dip into when you reach a certain goal amount and want to treat yourself to a new toaster, KitchenAid mixer or car. None of these items are emergency purchases, apart from the car maybe, if your current car is a goner. It’s fine to pull money out of your savings fund to cover these types of purchases but you should leave your emergency fund the hell alone.
That being said, emergencies are all relative
What might be a valid use of your emergency fund for you, might not be for me. My idea of an emergency fund is something you rely on if you were to lose your main source(s) of income. It should be enough to give you some breathing space for a period of months whilst you sort out an alternative source of money.
That’s on the extreme side. It can also be used if something vital were to pop up, like a sudden death in the family which saw you in need of a last minute flight to the other side of the world. Ideally, you would dip into your savings for this but if not, emergency fund that flight!
How much money should you have in an emergency fund?
Enough to give you freedom and peace of mind. I’ve seen many money bloggers suggest aiming for £1000 in the first instance and then building on it from there. Ideally, you would want enough to cover a month’s worth of outgoings, then two, then three etc.
I stayed in a toxic work environment where I was constantly gaslighted and made to feel worthless for months, purely because I didn’t have an emergency fund or savings to cover my bills, had I left
Why I consider an emergency fund essential
It potentially allows you the option and freedom to leave toxic or dangerous situations such as a job where you are subjected to bullying or a relationship where you are suffering from verbal or physical abuse. I’m simplifying as I know it isn’t money alone that keeps people in these situations but it is often sited as a major reason why people end up staying in them. From personal experience, I stayed in a toxic work environment where I was constantly gaslighted and made to feel worthless for months, purely because I didn’t have an emergency fund or savings to cover my bills, had I left.
If the pandemic has taught us anything, it is how fast the world can change and with it, personal situations. You may have a stable job and nice housing one moment, and the next it can all be taken away from you. Building up a fund to help buffer you in times of financial need can be an enormous worry off of your mind. It’s basically your own insurance policy against the unknown.
Do you have an emergency fund? Have you considered the importance of having one?
