This article is for general information and guidance only. It is not financial advice and should not be relied on as a personal recommendation. If you are unsure what is right for you, you should seek independent financial advice.
Unexpected costs can happen at any time. Whether it’s a broken boiler, car repairs or a sudden loss of income, having an emergency fund set aside could help cover these situations.
It is generally considered useful to save three to six months of essential living costs in case of emergencies if possible. However, this is a general guideline. The amount you should have in your emergency fund will ultimately depend on your individual circumstances.
In this guide, we’ll cover:
- How much emergency funds you might need
- What could affect your target
- How to build an emergency fund
- Your potential options if you need money sooner
What is an emergency fund?
An emergency fund is savings set aside for unexpected expenses. It’s not used for planned spending like holidays or home improvements. It’s there for situations you could not predict.
Having an emergency fund in place could help you:
- Avoid relying on credit for sudden costs
- Keep your finances more stable
- Feel more prepared for the unexpected
How much emergency funds should I have?
A common guideline is to save three to six months’ worth of essential living costs.
This usually includes:
- Rent or mortgage
- Utility bills
- Food and household essentials
- Transport costs
- Insurance
For example: If your essential monthly costs add up to £1,500, you might aim to have £4,500 to £9,000 set aside in your emergency fund.
This is a general guideline, not a fixed amount. You may need more or less depending on your situation.
What could affect your ability to build an emergency fund?
- Your income stability: If you have a regular income, you may feel comfortable with a smaller emergency fund. If your income changes from month to month, you may want to build a larger buffer.
- Your household situation: If you support a family or have dependants, you may want more savings in place.
- Your monthly costs: Higher essential spending usually means a larger emergency fund target.
If you already have some savings or access to support, you may not need to build as much straight away.
How to build an emergency fund
Saving several months’ worth of expenses may feel like a big target. The key is to start small and stay consistent where possible.
1. Work out your target
Start by calculating your essential monthly costs. This includes things like your mortgage or rent, bills, food and transport.
Once you have a monthly figure, you can set a realistic target. For example, you might aim for one month of expenses first, before building towards three to six months over time.
2. Start with a small, achievable goal
If saving several thousands of pounds feels out of reach, it may help to begin with a smaller milestone.
You could aim for:
- £250 as a starting point
- Then £500
- Then £1,000
Reaching these smaller goals could help build momentum and make the process feel more manageable.
3. Build saving into your monthly budget
Consistency is often more important than the amount you save.
Setting aside a fixed amount each month could help you build your fund gradually. This might be:
- A set amount, such as £50 per month
- Or a percentage of your income
If possible, setting up an automatic transfer just after payday could make saving easier and more consistent. Only set up an automatic transfer if doing so doesn’t impact your ability to maintain your current outgoings.
4. Review your spending
If you’re finding it difficult to save, it may help to look at your current spending.
You could:
- Check subscriptions you no longer use
- Review utility or insurance costs
- Look for small areas where you could cut back
Even small changes could free up extra money to put towards your emergency fund.
5. Keep your emergency fund separate
Keeping your savings in a separate account could help reduce the temptation to dip into it.
An instant access savings account is often used for emergency funds. This means you can access the money quickly if needed, while keeping it separate from your everyday spending.
6. Add to your fund when you can
If you receive extra money, such as a bonus, tax refund or a gift, you may want to consider putting some of it towards your emergency fund.
This could help you reach your target sooner without relying only on monthly contributions.
7. Review and adjust over time
Your financial situation may change over time. If your income or expenses increase, you may want to review your emergency fund target.
You could:
- Increase your monthly contributions if you can afford to
- Adjust your target if your essential costs change
8. Know when to use it
An emergency fund is there for unexpected, essential costs.
Examples may include:
- Urgent home repairs
- Essential car repairs
- Unexpected medical costs
- Loss or reduction of income
Being clear about when to use it could help you avoid using it for non-essential spending.
Should I save or pay off debt first?
If you’re in debt, saving money for an emergency fund might feel more difficult.
In some cases, it may help to:
- Build a small emergency fund first (for example £500 to £1,000)
- Focus on paying your priority debts
- Then continue building your savings
This approach could help reduce the need to rely on further borrowing in the future.
If you have monthly repayments to make, pay these first. Once those are under control, you may be in a better position to start building your emergency fund.
What if I need money before my fund is built?
Building an emergency fund takes time. If something unexpected happens before you reach your target, you may need to look at other options.
Some people may:
- Discuss a payment arrangement with existing creditors
- Use a credit card
- Ask family or friends for support
- Consider a loan
- Take advice from organisations such as MoneyHelper, Citizens Advice or StepChange
If you’re a homeowner, a secured loan could be one option. This allows you to borrow money against your property and repay the amount over an agreed term.
This could help spread the cost of a larger, unexpected expense. However, it’s important to understand the risks. Your home could be at risk if you do not keep up with repayments.
Related guides
Need some help managing your money? You might find these guides useful:
Representative 21.82% APRC (Variable)
For a typical loan of £18,900 over 180 months with a variable interest rate of 18.72% per annum, your monthly repayments would be £335.99 for 179 months and then a final payment of £335.79. This includes a Product Fee of £1890.00 (10% of the loan amount) and a Lending Fee* of £763.00, bringing the total repayable amount to £60,478.00. Annual Interest Rates range between 8.6% to 27.87% (variable). Maximum 50.00% APRC. *Lending Fee varies by country: England & Wales £763, Scotland £1,051, Northern Ireland: £1,736.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other loan secured against it. If you are thinking of consolidating existing borrowing, you should be aware that you may be extending the terms of the debt and increasing the total amount you repay.
