Put cash aside on pay day for emergencies

MANY of us have seen unexpected drops in our income over the last six months, either because our employers have cut our hours, we are self-employed and have lost our income completely, or we have been made redundant.

If one of the above was to happen to you, how long could you survive if you stopped earning money?

It’s a question that most financial advisers ask their clients pretty early in their relationship and the answers are often surprising.

Most advisers reckon that people should have an emergency fund that equates to three months’ income, although some would increase this to six months.

It’s important to have money in the bank in case of emergency.

Redundancy or a cut in hours are relevant at the moment but equally illness or the breakdown or a relationship can cause a sudden drop in, or loss of, income.

But the bills still need to be paid and if there is nothing in the bank we end up resorting to borrowing money.

The stress of dealing with illness or redundancy or a relationship breakdown can be bad enough without having to deal with a bunch of bills that you can’t pay as well.

Many of us find it difficult to make ends meet even when we are earning money and so putting together an emergency fund is not easy.

But it is important and so what you should try to do is find a little bit of slack in your budget and transfer a small amount to a savings account every month.

Don’t wait until the end of the month to see what you’ve got left.

Look carefully at your budget, figure out how much you can afford to save every month, and transfer this amount to your savings account as soon as you get paid.

That way you know that it will actually happen. If you leave it until the end of the month to see what is left, there is a good chance it will be nothing.

And since this fund is for emergencies, make sure that you keep it in an account that you can access quickly. Look for the best interest rate that you can find by checking out comparison sites.