We all know that even with best laid plans life does not always run smooth. That could be something major and life changing such as a change of health, work situation or financial circumstances which could have a significant impact upon you. Equally it could be something relatively minor such as the need to replace a specific item on a one-off basis.
When these things happen, it is important that you have a pot of accessible monies for just that circumstance – known as an ‘Oh No’ or Emergency fund.
What should it look like?
These should be monies which are available to access instantly and need to be deposit based so that the amount that you require is there when you need it. Whether you choose to keep this within your current account, a separate savings account with the same bank/building society or another organisation is your choice, but you need to be able to access and spend it immediately. Whilst achieving a return on these monies would be desirable, that is not the main purpose.
For those of you who are business owners, these monies should be held personally rather than held within your business before they had been moved to personal funds and relevant tax paid.
How much should it be?
The amount that this should be is always slightly subjective and personal to your individual circumstances. However, there are some broad measures that would make sense for most people.
As a starting point we would typically advocate an emergency fund which is equivalent to 3-6 months of regular expenditure. For example if regular expenditure is £3,000 per month the emergency fund should be £9,000 – £18,000).
For those who are more cautious by nature, or have more uncertain sources of regular income it would always be advisable to consider increasing that slightly up to as much as 12 months of regular expenditure.
What happens if I use it?
In the event of needing to use this but then your circumstances return to normality, you should aim to replace the amount that you needed to use in case of needing to use this in the future. This should be as soon as is practically possible so that if another emergency occurs again within a short period you are still able to.
If you require any further guidance relating to this area, please get in contact and we would be happy to talk with you about this.
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