The importance of having a rainy day fund
Do you feel confident that you’d have enough savings to get by in the event of a big life event? How about a small car repair or a sudden, unexpected household bill?
If you don’t usually give a second thought to saving money, you’re not alone.
One in ten people in the UK have absolutely no savings at all. And a third of us have less than £600 stashed away for a rainy day.
But given a recent, life-changing pandemic that’s transformed the world’s economy in a matter of weeks, more and more of us have realised that savings aren’t just nice to have – they’re vital.
With redundancies and furlough wiping out or drastically reducing household incomes, it’s only sensible to wonder how much you should be squirreling away.
Recent events have shown that making the decision to save can truly mean the difference between weathering a financial thunderstorm… and being left out in the rain.Get free advice
How much should I have in savings?
There are loads of different opinions on this – and it all comes down to your personal situation.
Some financial experts recommend that you have enough money on standby to cover three to six months of your living expenses. But given how little money some of us have spare, this can feel vastly unrealistic.
The good news is, even saving a little is worthwhile. It can prevent you from getting into debt over something small, like your car breaking down. And if you get into the habit of saving regularly, it’s surprising how quickly your money can grow.
Why should I have savings?
Having a pot of savings can protect you from getting into debt when the unexpected happens. It can shield you from high-interest, short-term financial fixes like payday loans and expensive APR, and means you don’t have to spend more money than you have – which is a recipe for debt.
While we all think these unexpected events will never happen to us, as we’ve all found out recently, life as we know it can change in the blink of an eye. Here are just a few life events that can turn your world upside down if you don’t have a savings buffer…
- Breakdowns and repairs – Whether it’s an unexpected car breakdown, your washing machine grinding to a halt, or a stormy night ravaging your roof, life sometimes hits us with pricey little challenges when we’re least expecting it.
- Illness – While we’re fortunate in the UK to have a free health service, unexpected illness can still leave you in bad shape financially, whether you’re off work for a few weeks, or have to take long term leave to care for someone in your family.
- Reduced income or losing your job – Suddenly losing your job can be catastrophic for your personal finances, especially if you have bills to pay. And in light of the recent pandemic, the notion of job security is swiftly becoming a thing of the past.
- Death – While no-one wants to dwell on death, funeral debt is rising dramatically every year in the UK. Grieving is distressing enough, without factoring in the financial toll. It costs at the very least between £3,000 and £4,000 for a funeral – and 12% of us are left in debt after a death.
So how do I save more money?
It’s one thing deciding to set up a savings fund… and quite another committing to it.
But thankfully, it couldn’t be simpler to get started. Here are three quick tips to get you on your way to saving for that rainy day…
Follow the 50-30-20 rule budget
One popular way of thinking about your money every month is the 50-30-20 budget. Having a framework can help to segment your spending, save the right amount, and avoid overspending on treats. Simply figure out how much money you have after tax every month, then assign it to one of these three categories:
- What you need (50% of your income) – This includes absolute essentials like your mortgage, school clothes for the kids, essential household bills, insurance and other expenses that ensure your day-to-day survival.
- What you want (30% of your income) – Everything from a pumpkin spiced latte on a chilly autumn day to a cinema trip with the kids or a holiday in the sun.
- Your savings (20% of your income) – Every month, you should diligently squirrel away 20% of your overall income for a rainy day. This savings pot is different for everyone; it might include your emergency fund, but also potentially your pension pot or debt repayments, like paying off credit card bill.
Save smart, not hard
You might have heard of app-based banking, but there’s also loads of clever tech out there designed to help you save, too. Some can help you automate your savings so you can pay out a set amount every pay day towards your pot. Others will analyse your spending and siphon away spare change to your savings every month. Because saving – even a little – should feel effortless.
Have a savings goal – and review it regularly
When you’re just starting out, your savings goal might be to get an emergency fund in place to cover small expenses, like one of the kids needing a new pair of shoes, or the boiler breaking down. Then, it might grow to cover a few months of missed salary if you or your partner loses your job.
From here, you can be more ambitious and proactive. Eventually, your goal could be getting enough in the kitty for a deposit on your own home, or buying your own car. Who knows? Your savings fund could even help you plan your holiday of a lifetime, or retire a little early.
Whatever your goal, when you save, you give your financial dreams the chance to become a reality.
If saving anything seems impossible just now, and you’re struggling to get by day-to-day, it could be time to ask for help. Our team of friendly, professional debt advisors can help put your mind at rest about your debt. Give us a call today, on 0808 253 2541Get free advice