10 ways to kickstart your emergency fund

By Amanda Hall-Davis

It’s no fun living on the edge of ruin. If you don’t have an emergency fund equal to three to six months basic living expenses, that is just what you are doing.

An emergency fund is a ‘must have’ for your financial security. It gives you a money cushion to fall back on if you become ill and can’t work or if you lose your job – all too common these days.

Saving three to six months after-tax salary may seem like a daunting undertaking. Relax. You don’t have to do it overnight. But it is important that you get started straight away as the quicker you do it, the sooner you’ll be enjoying the feeling of security an emergency fund gives you.

Start saving tax-free with a Cash ISA… click here for more

Put a plan in place and get started
Remember is that this fund is only for paying your bills if you cannot work. That doesn’t include holidays or nights out or fixing the car. Getting started immediately is also vital – even if you can only save £10 a month.

But actually you can probably save a lot more than £10 a month if you put your mind to it. In fact we’ve put together ten ways to help you save hundreds of pounds a month. At that rate you’ll have your emergency fund in no time.

The first step is to take stock of your finances. Often it’s much easier to spend less than it is to earn more, and a little cost-cutting effort in a number of areas can result in big savings. It doesn’t always have to involve making big sacrifices and can help you be financially prepared for the unexpected.

Regular savings accounts are excellent for small amounts

Simple Saver #1: Know where your money is going
Start a spending diary for a week. And then for the month. Note down all your expenses to see where you can make cuts. You could be amazed at where your money goes. The lunchtime sandwich and coffees and the weekly magazine are small items that soon add up. Compare how much you could put aside if you cut down.*

Luxury itemsDaily costMonthly cost
Sandwiches£4.00£90
Coffees (3per day)£6.00£135
Weekly magazine (£1.50 per week)£6.75
You save£231.75

* Based on expenditure over a month (4.5 weeks)

If you made your sandwiches, cut out the caffeine – or used the office kettle – and sacrificed your magazine, you would save over £200 a month towards your emergency fund that is over £2,700 a year.

Start saving tax-free with a Cash ISA… click here for more

Simple Saver #2: Ditch the Oystercard and start cycling
Imagine how much you could save on train and tube fares if you chose the green route and cycled to work. Not only would you benefit from less stress and be fitter but you could save £100 a month.

A monthly Oystercard for zones 1-3 sets you back £100 a month. Get on your bike today and put your savings in a high interest instant access account. This won’t work for everyone but if you can, you should.

Check out the top instant access accounts on our best buys tables

Simple Saver #3: Switch your current account
It is too easy or lazy to stay with the same bank you have had for years, yet you could be making money if you switched. Many high street banks generally peanuts on credit balances in current accounts, yet if you opened an account with [Alliance & Leicester] that pays 6.1% interest, see how much you could save.*

ProviderAccount balanceTotal interest paidAnnual saving
NatWest£3,0000.5%£15
Alliance & Leicester£3,0006.1%£183
You save£168

You could save £168 a year towards your emergency funds if you switched accounts today. Don’t forget though that if you are not in credit for most of the month the most important figure you need to look at is the interest rate the bank charges on overdrafts.

Here again Alliance & Leicester comes out on top, charging 5.9% where most banks charge 12% or more. If you have a £1,000 overdraft all year switching to A&L would save you £61 a year.

Simple Saver #4: Swap your plastic now
Save hundreds towards your fund when you transfer your balance over from one credit card to another and pay 0% interest for the longest fixed period. Compare how much you could save if you swap your card.*

Issuer/CardTypical APRAnnual interest paid
Nationwide Classic17.9%£537
MBNA Amex Rewards0%£0
You save£537

*Based on an outstanding balance of £3,000 for 12 months

In 12 months, you would save over £500 – that is a saving of over £40 a month.

Simple Saver #5: Change your energy supplier
Cut your bills and save cash by changing your energy provider. You should shop around for the best deal in your area and use our price comparison partner here. If you switch from British Gas to ’dual fuel’ you could save up to £300 a year.

Click here to save £300 on our household bills best buys table

Simple Saver#6: Shop around for cheaper car insurance
Increase your excess to reduce the premiums on your car insurance. Before you renew your policy, compare quotes online to get the best deal and you could save as much as £100.

Don’t just accept that renewal quote – look at our best buys first

Simple Saver #7: Save money on your home insurance
You could save up to £300 cash if you shop around and take out combined buildings and contents insurance. If you have taken out other insurance products with the same provider this may also save you cash. Haggle for cheaper renewal costs and you may get added reductions.

See our home insurance best buy and find the best quote

Simple Saver #8: Cut costs with cheaper broadband deals
‘All in one’ broadband and phone packages or bundle packages including cable could save you up to £200. Always check the small print for extra costs or download restrictions. Don’t make your choice purely on price, good cus

Next Article: Beware the ‘easy access’ savings account penalty

Previous Article: A beginner’s guide to tax-free saving

Should you invest your emergency fund in Equity?

Other options that are suitable for an emergency fund are liquid funds and ultra-short-term debt funds which offer reasonable returns, low cost and a low volatility in value. Liquid and ultra-short term funds deploy the money in short term instruments, and pass on these returns to the investors after cost. These funds can be withdrawn on demand, and most funds pay the amount in one working day. Remember, bank deposits come with a guarantee only up to a specific amount (Rs 1 lakh across all deposits). 

Editorial Note: This content has been independently collected by the EveryInvestor advisor team and is offered on a non-advised basis. EveryInvestor may earn a commission on sales made from partner links on this page, but that doesn’t affect our editors’ opinions or evaluations. Learn more about our editorial guidelines.
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