COVID-19 was an emergency situation that lots of households were not financially prepared for. With household debt at its highest, COVID-19 was the final ingredient in a recipe for disaster.
The BBC recently reported that 27% of people are worried about how they will make debt repayments during and after the pandemic.
Now that the situation is slowly returning to normal, many people may be more concerned about their current financial health – and their ability to cope in another financially pressurising situation.
Online loan website Wonga has recently published some valuable (and free) information on how you can grow an emergency fund for future events. Your emergency fund will be beneficial in the event of another pandemic or if you experience another financial emergency, such as losing a source of income. Wonga break their emergency fund guidance into 4 key steps that we’ll explore below:
- Determine Your Needs
We all lead different lives and lifestyles, and that means we all have varying financial needs. The first step in growing an emergency fund is to determine what your monthly financial needs are. How much do you need to cover costs and what can you afford to put away? This is best achieved with a realistic and honest budgeting plan.
- Create a Realistic Action Plan
Having a spreadsheet is one thing but coming up with actionable and realistic ways for you to stick to a budget is another. Along with your budget, you could make a list of ways that you will stick to saving for an emergency fund. For example, you may buy a flask and start taking coffee to work instead of buying it on the way in. Make sure all your tasks are realistic. You don’t have to be an extreme saver that eats soup all year!
- Use Your Plan to Save/Invest
Leaving the money that you put away in any old bank account is like leaving food on the kitchen table all week – it will deteriorate. Due to inflation rates and rising costs of living, by keeping money in a bank account with low or no paying interest means your money is getting less valuable by the day.
Instead, you need to search the market for the best savings rates to protect your hard work. This might mean looking away from the high street banks.
- Grow and Diversify Your Plan
But one savings account might not be enough. The best rates are often found in fixed bonds where the money cannot be touched for a year, two or even five years. You can spread your savings out between these types of accounts and easy access savings accounts where you can access your money any time.
Don’t put all your savings into a fixed account because you may not be able to access it when you are in a financial emergency. If you are prepared for some financial risk, a stocks and shares ISA may be another option.
Start Your Emergency Fund, Today!
You can’t grow an emergency fund if you don’t start one. Instead of putting it off for a rainy day, make sure to start your emergency fund ASAP. The sooner you start, the faster you can start to grow an emergency fund.