When the unexpected happens — a car breakdown, an unplanned medical expense, or a sudden gap in income — having a reserve of cash can prevent a financial headache from turning into a crisis. An emergency fund is exactly that: a dedicated pot of money set aside for life’s unannounced surprises. Think of it as your safety net, giving you peace of mind and a buffer against new debts.
Why it matters
Without an emergency fund, even minor setbacks can force you to rely on overdrafts or credit cards. That can quickly spiral into expensive debt. By having savings on standby, you can handle short-term problems without derailing your everyday budget. It’s not just about covering a single crisis — it’s about protecting your long-term financial goals.
How much should you save?
A common guideline is to aim for at least 3 months’ worth of essential expenses, but don’t let that target scare you. It doesn’t have to happen overnight. Start by building a small cushion—maybe £500 to £1,000—and add to it steadily. Your circumstances will decide how much you eventually need. If you have a mortgage, children, or irregular income, you might want a bigger fund to stay prepared.
Over time, you can increase your emergency fund to 3-6 months of living expenses. If you have a mortgage, children, or irregular income, you might want a bigger fund to stay prepared.
Fitting it into your budget
If you already track your income and spending (as covered in the budget guide), you can see how much is left each month after paying for essentials. Consider moving a fixed amount into a separate savings account on payday, treating it like any other must-pay bill. Even a modest sum will add up over time, and automating the process helps you resist the temptation to skip a month.
Choosing the right account
Since emergencies don’t wait, you’ll want your money within reach. A simple, easy-access savings account is often the best choice. Many banks offer these with the ability to withdraw funds quickly, and some pay decent interest. An alternative is a flexible Cash ISA, which allows tax-free savings, but check for any withdrawal restrictions so you’re not caught out when you really need the money.
What if you also have debt?
Prioritising high-interest debt (like credit cards or payday loans) is often the best move. Still, it can be wise to save a small emergency fund alongside debt repayments to avoid borrowing more if something goes wrong. If you have complex or multiple debts, the debt guide explains where to get free, confidential support — from organisations like StepChange and National Debtline — to help you find a balanced approach.
Keeping it going
Life changes, and so should your emergency fund. As your essential expenses rise or fall, tweak your savings target. If you dip into your fund to cover an emergency, aim to rebuild it as soon as you can.