Greater wellbeing can be gained by having emergency funds set aside. Whether you are embarking on your life of wealth creation or deciding how to make the assets you have already built up last throughout your later years, the first part of a financial plan is to establish an emergency fund.
We advise our clients to have an emergency fund in place to support themselves and their expenditure in the event of an extraordinary reduction in their income. Having sufficient funds to cover at least three to six months of their living expenses should be set aside.
For example, work out the total monthly household expenditure figure and times by three and six, e.g., if the total monthly household expenditure figure is £1,000 then the emergency fund would be between £3,000 to £6,000.
Emergency funds are there to support you if you were, for example, to contract a serious illness or lose your job. You may choose to have more than six months’ expenditure if that makes you feel better and increases your financial wellbeing. Knowing that you have sufficient funds set aside that will cover your bills and expenses for six months in the event of any future financial shock will enhance your wellbeing.
We would advise, for those thinking about setting up an emergency fund, that they save a little and often. Having a discipline of setting up a monthly payment can be key. A modest sum automatically leaving your account, that you’ll forget about, may turn into the bedrock of your investment portfolio a few years down the line. Of course, adding lump sums, when spare cash becomes available but don’t overcommit as this might negatively affect your quality of life now.
Fear of the unknown is the arch enemy of wellbeing. Reduce the unknown by doing something about it today, no matter how small. This is a lesson we can pass on to our children.
“Look after the pennies and the pounds look after themselves” is a good habit to adopt at a young age.
If you would like to speak to one of our financial advisers to find out how you can achieve an emergency fund, please get in touch or call 01932 943028.