Saving Strategies for Building an Emergency Fund that will get you through Economic Changes

Whether through the natural cycle of economics or unforeseen political turmoil, at some point in all our lives we will face challenging economic conditions. Having an emergency fund to cover such an issue is not just sensible, but is necessary to ensure your long-term financial plans can be maintained, but how do you create that fund in the first place?

There are several approaches to an emergency fund, each with its own benefits. Some may not suit your situation, and in most cases using more than one approach can bring the best results, but if you are looking to build an emergency fund, and you should be, here are the best strategies you can implement now.

How much do you need?

How big should an emergency fund be is the first question to answer, and the actual numerical amount will be different for everyone. First, calculate your monthly outgoings, including housing bills, food, transport and energy, the things you need to live your life. Once you have that total, you can work out what your emergency fund should look like.

In general, you want between three- and six-months’ worth of bills to be covered by your emergency fund. From there, choose a timeframe to save for that emergency fund, and you have a good idea of the amount you need to save each month. For instance, if you need $30,000 for 6-months of essential bills, and you want to save over 3 years, that is $833 a month to save.

Where do you save it?

Because your emergency fund is designed to be there in times of economic turmoil, it must be held in a very low risk way. It won’t be much of an emergency fund if it collapses in value as the economy tanks, after all. While you want to see some return on your money as it is stored, you also need to be able to get at it quickly too, an emergency doesn’t often leave time to plan ahead on a 90-day withdrawal account for instance.

So, a simple savings account tied to your current account is a good option. Although products such as money market funds do offer low risk investments with a slightly higher yield than a bank savings account, and some do recommend them for this kind of saving, in a genuine emergency the lack of access to funds could be an issue in the short term.

Building the emergency fund

Saving for an emergency fund is an achievable goal, but doing so without impacting other financial obligations or lifestyle can be a bit more of a challenge. It does require commitment to save what can be a significant amount of money each month, especially if you are looking to create the find very quickly.

However, for most people, you can find areas to divert funds where you won’t necessarily feel much of a change. Eat out a little less while saving, take one less trip each year, be a little less extravagant with Christmas and Birthday presents and you may find that extra money is there for you without much impact on your overall lifestyle.

Consider setting up a regular transfer of funds to the emergency fund savings account so that it happens automatically. This ensures the fund builds over time, whether that is monthly, bi-annually or whatever period works for your situation.

Getting help

You can do all this yourself, of course, but by talking to a financial planner the whole process can be stress free and simple, taking up as little of your time as possible. As part of a larger overall wealth building strategy, a financial planner can help you create an emergency fund in the most efficient and effective way possible so you have peace of mind whatever the economy may do.

Our team are here to help with every aspect of your financial wellbeing, whether you need to develop an emergency fund, create a retirement strategy or any other aspect of your wealth management. Get in touch today, we bring clarity to your financial future.