“You must gain control over your money or the lack of it will forever control you” –Dave Ramsey
I’ve found recently that whilst knowledge may be power, its also pretty darn scary! After literally hours and hours of searching the internet on all things finance, its seems the universe (well Google) is trying to tell me I may already be too late. I should have already been saving 10% of my wages for the last twenty years, I also should have been planning for my retirement (conventional age 65 of course) as soon as I turned 30 so I’m already late to the saving party. After taking a few deep breathes I’ve decided that the best way to start saving is to begin with an Emergency Fund.
The Emergency fund is exactly what it sounds like: a pot of money set aside for emergencies such as a boiler breaking, the car not starting and being out off work for a few months.
How much is enough?
This is definitely a one size does not fit all type of question! Its fairly easy to work it out though and there are two ways to do it.
- Simply aim for three months wages. You know you can survive on it as you do it every month,
- Work out what you spend each month on mortgage/rent, food and heating bills, and other things you cant live with out. Aim to have three months worth.
How much is too much?
The jury is still out on this. My very inexperienced take on it is that you don’t really want to have more than six months worth of emergency cash no matter which method you use for calculating. Quite simply put its a bit of a missed opportunity, don’t you think? Your missing out on the opportunity to gain a better interest rate.
Where do I put it?
Its up to you really, Cash under the bed or in an instant saving account is still cash that can be accessed quickly, although the former runs the risk of getting spent or lost/stolen. The best bank account is one that gives you quick, easy and penalty free access to your cash. I’ve had an instant saving account since the beginning of time (not literally) and I’m sure it will work just fine.
So once you’ve saved up your magic emergency fund number, whats next? I’m going to be researching Isa’s next so I’ll let you know.
Where are you up to with your emergency fund?