emergency funds

Do You Have Emergency Funds in Place?

havenifa

havenifa


Posted on: 5th January 2023

No doubt that people making the most of Christmas and New Year during the cost-of-living crisis are going to be facing a shaky start to the new year – with statistics pointing out that two-thirds of families don’t have enough saved in emergency funds. Even though it is a high spend period we have just gotten through, it is time to ask yourself if you have enough saved to cover potential emergencies that may spring up in 2023.

Emergency funds are important to creating financial resilience, enabling you to maintain financial commitments as well as your lifestyle in the event of the unexpected – and 2022 presented plenty of the unexpected.

Building these emergency funds is key to improving your financial well-being as it can bring peace of mind about the future. With inflation high and an expected recession for the UK in 2023, emergency funds are now as essential as ever to create a buffer as costs continue to rise, providing you with security within the uncertainty.

The average working household has less than a month’s worth of expenses in their emergency funds, with an average of £2,400. Due to the cost of living rising, more than half of UK families are using their rainy day funds to meet everyday costs. Currently, 1 in 4 households has already accessed their savings to cope.

As well as depleting how much is an emergency fund, inflation is putting pressure on families even adding to them. 30% of UK households stopped putting money into savings accounts last year due to the rapid ascension of everyday costs. Emergency funds, however, play the most important part in planning the future and feeling confident in it. Families today need to have around £12,100 in their bank to feel security financially.

Reaching this goal would help families to weather the financial uncertainty as well as improve their well-being, reducing anxiety because they know they have that financial safety net below them.

How to Create an Emergency Fund

Whilst many places speculate that an average family will aim for around £12k in savings, you need to consider your circumstances and set a realistic target. This is something you should sit down with independent financial advisers Manchester to determine.

Often it is advisable to hold between 3 to 6 months of expenses within your emergency fund, making you able to cover short-term outgoings should your income be disrupted. Work with an adviser to look into your regular outgoings and set a realistic target that makes sense. With your target in mind, break your goal down into smaller goals, helping to easily manage to build your emergency fund and incorporate it into your budget.

Set a minimum amount you want to add to savings each month, then class it as one of your regular expenses. You can even set it as a standing order so it leaves your account automatically, reducing your likelihood of spending it. Smaller milestones can be celebrated on the way to your main goal, helping to keep you motivated and confident.

Working with independent financial advisers Cheshire will help you get the most out of your savings, as well as review all alternatives before you go dipping into your emergency funds. An emergency fund is important to improving financial resilience and there are many steps you could explore depending on your goals.

Contact the team at Haven IFA today to talk with our team about helping you get on financial security for 2023.