Saving is a brilliant habit to get in to and the very first thing you should look at when starting to save is building an "emergency fund".
This fund aims to give you an emergency buffer should you lose your job, or are faced with an unexpected expense that would ordinarily cripple your finances.
It will also give you some peace of mind, not to mention a feeling of some control in a situation where you might otherwise find yourself needing to borrow money.
How much you need to stash in a savings account for your emergency fund will depend on your personal situation, but you would ideally want enough to cover your bills for a few months. It's generally recommended that you have around 3-4 months' worth of income saved in an emergency fund, just in case.
Sometimes you might even have an inkling of a forthcoming "emergency" such as a hunch that your car might not make it through the next MOT, so you may want to up the amount you save in readiness.
Look also at insurances you have, such as income protection. These can provide a cost-effective way of making sure you can pay at least some of your outgoings in the event you are unable to work or are made redundant.
Now you have an idea of the figure you need to save, it's time to look at how you can achieve it – and this involves putting your monthly budget under the microscope:
- Do you have magazine subscriptions that you never read? - A gym membership you never use? - Can you get a better price for your insurances? - Can you get a more competitive energy tariff? - Are you getting the best value from your mobile phone contract?
Once you've done all this you should be able to identify the amount you can comfortably put away each month into a savings account.
The amount you decide to save shouldn't be such a challenge that you find it a struggle getting through the month, but at the same time, to achieve your goal you are going to need to save a reasonable amount.
Obviously you're not going to be able to save your emergency fund overnight. Be prepared for it to take several months, even a couple of years, until you've got your fund at a level you're happy with.
Don't be put off by the length of time it takes to save – keep thinking about what you're saving for, and how this money would get you out of a hole if you were ever to need it.
As you're going to be saving regularly, and potentially need to get at your money quickly, you'll need a savings account that lets you:
In addition you may want to look at savings accounts that let you:
To start off you may find that your normal bank account will suffice, particularly as some pay higher interest than the best savings rates on offer (some high interest current accounts offer in credit interest rates of up to 5%).
However, the downside is that your emergency fund is inter-mingled with your everyday funds, which can cause confusion – not to mention the temptation to spend!
For an emergency fund you will probably find that one of these types of savings accounts is most suitable:
Compare easy access savings accounts
Compare notice savings accounts
Compare regular savings accounts
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More savings guides
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.
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