Rainy day funds: saving for the unexpected

What is an emergency fund?

Typically, emergencies don’t let you know they’re on their way, and in some cases, you can’t afford for them to happen – so it’s always good to be prepared for any financial emergency with savings.

Savings can act as a safety net until you get back on your feet or until the situation changes. By having an emergency – or rainy day – fund, it helps you deal with those surprises without needing to get into debt.

Depending on your budget, saving might not be easy, but if you can spend less than you earn, it’s recommended to put some money aside for a rainy day.

What's not an emergency fund?

An emergency is something that usually requires immediate action, like an illness in the family or an unexpected bill – perhaps if your car breaks down. Non-emergencies are things like holidays, celebrations and things that can be planned for – such as car insurance.

It’s important to separate an emergency from a non-emergency, because it’ll make it a lot easier to build up your savings when you’re not dipping into your emergency funds for things that don’t need sorting right away.

How much should I be saving?

The amount of rainy day savings you need will of course depend on your situation, but financial experts recommend aiming to have around three to six months’ worth of your regular expenses put away.

However, you don’t need to worry about not having that straightaway. Starting small is a great first step – smaller targets are easier to reach and can encourage you to save more once you see how well you get on. 

Once you’ve started building up your savings, there are a number of ways you can keep building on them. Let’s take a look at how you can do this.

Set a monthly savings goal

It’s worth separating your savings from the account your pay goes into. This’ll help stop you from spending the money you shouldn’t. After separating your savings from your current account, one of the best ways to get you into the habit of saving regularly is to set up a standing order. You can time this to transfer some money automatically into your savings account when you get paid. It’ll be a lot more motivating than taking out a lump sum of your pay all at once.

Pinch your pennies

When it comes to savings, every little helps. Whether it’s change from breaking into notes, or change from your daily coffee, it pays to save.

There are also apps that round up your online purchases to the nearest pound and put the difference into a savings or investment account. For example, if you spend £3.70, these apps will charge your account £4 and put the 30p difference into another account or a separate savings pot.

Give some, get some

If you have a few stores you shop at regularly, you may be able to save some money through loyalty rewards or collecting points you can use for future purchases from them. It’s easy to collect points and it means you can put the cash you save into your rainy-day pot.

Save your windfalls

Occasionally, you may receive a lump sum of some sort – whether it’s a tax refund, a bonus or an unexpected reward. Sometimes, it can be tempting to splurge when we get a large amount of money at one time.

With all savings, the more you can put away, the better. Unless you’ve got things that need attending to – like paying off debt – putting most, if not all, of a pay-out away is a great way to build your savings pot.

Don’t be too strict

Life happens, so there’s no shame in reducing or increasing your contributions if your situation changes. This could be because of a pricey life event like moving house, getting married or welcoming a new addition to the family.

Don’t be disheartened about not always keeping to the same amount – every month comes with different trials. It’s understandable if you can’t contribute the same amount to your savings each time. Consistency is important, but so is adapting to your situation.

So what now?

You’ll never know when emergencies will happen, so all you can do is prepare for them – saving is the best way. Separate your emergency fund from your regular account, and take it a step further by creating a separate account for your bills. That way, the only money in your main account will be money you can spend after covering your outgoings