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The importance of an emergency fund

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You have no idea what life is going to throw at you, particularly as you get older. Being prepared for whatever comes your way is always a good idea, whether it be health concerns, family troubles or money worries. One way to build your financial resilience is to start an emergency fund, which we discuss in more detail below.

What is an emergency fund?

An emergency fund isn’t as technical or complex as you might first think. It’s simply a pot of money you put aside to help pay for things that you didn’t expect or don’t have the immediate funds to afford.

It should be separate from regular savings because any money you put away in this fund is specifically for emergencies and times when you need it most, rather than going towards a big purchase in the future. It’s got an important role to play in your personal finances, so it’s worth considering one if you haven’t already.

Why is an emergency fund important?

An emergency fund gives you a financial safety net should you run into any unexpected bills or expenses. This can include things like parking tickets or emergency dental treatments which you can’t afford to pay for out of your standard monthly income.

Having the protection of an emergency fund allows you and your family to overcome life’s little obstacles more easily and can help to do it without accumulating debt. Taking on debt is often damaging, especially if you’re looking to maintain or boost your credit score, and it can spiral out of control with added interest if you’re not careful.

As you get older, you’re likely to have more responsibility, whether that be a family, house, pet or anything else. An emergency fund helps to ensure you can look after all that through thick and thin without impacting your financial stability.

How do you start an emergency fund?

Starting is simple. You just need to find a way to put money aside where you can and when you can. This may be more difficult for some than others, but your emergency fund won’t grow unless you add to it and let it accumulate over time.

If you can spare some money from your monthly budget, you can put it away into an easy-access savings account to start your pot and try not to take any out unless you absolutely need it. Most people recommend aiming for at least 3 months of outgoings as a safety cushion, but that can be overwhelming to begin with. Just save what you can and do it consistently.


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