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Are you prepared for a financial emergency?

Are you prepared for a financial emergency?

Category: Savings

Updated: 18/05/2016
First Published: 18/05/2016

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

It's all very well having enough money in the bank to get you through to the end of the month, but what about if a financial emergency were to hit? Unexpected expenses may be just that – unexpected – but it doesn't mean we can't plan for them, and with research finding that the average person dishes out £548 every year on unexpected expenses, it makes sense to be prepared.

The research, from personal credit company Provident, highlighted the difficulties many people face when presented with unexpected expenditures, with the typical Brit having to deal with costs they hadn't bargained for three times each year. Despite this, 57% said they don't budget for the unexpected in their monthly income, and that could take its toll on their everyday finances.

Indeed, this lack of preparation meant that 36% of respondents have had to forgo holidays and seasonal events like Christmas to pay for additional expenses, while a further 15% even had to give up necessities like food and daily travel in order to cover such costs.

No rainy day savings

It seems that the much-repeated advice that people should have three months' salary saved for a rainy day isn't getting through, with 37% admitting that they'd probably have to turn to a loan to cover unplanned expenses – and that it would take an average of four months to pay off the full amount.

A far better plan would be to regularly squirrel away money in an easy access savings account to ensure you could cover such costs without your budget suffering. Building up a pot of three months' salary will of course take time to achieve, but if you stick to the little and often mantra, it could soon add up – and even if you have a lesser amount saved, it could be invaluable in a financial emergency.

But just what kind of expenses will you need to plan for? Well, the research found that cars are the main culprit when it comes to unexpected costs: our favoured mode of transport sets people back an average of £142 every year, with 60% of respondents saying they had at least one unplanned car-related expense last year, while 76% had to get their cars serviced within the last 12 months.

Other culprits include pets (£54), unexpected leisure activities (£58), new gadgets (£50) and homewares (£77), and although it comes every year, Christmas can still lead to unexpected additional costs of £71. Higher-than-anticipated bills can also set people back an average of £97 a year, which just shows the importance of having a financial buffer in place, because no matter how hard we try to budget, other costs can always sneak in.

Take control

If you don't want to be caught off-guard with hundreds of pounds' worth of unexpected costs each year, the key is to plan ahead. It's important to get into the habit of putting money aside each month – as mentioned, an easy access account could be your best bet for this kind of saving, as you can instantly get to your cash in the event of an emergency – but don't forget about things like insurance.

The right cover could ensure you've got a measure of financial protection in place that could make unexpected expenses easier to cope with, and if you're fully prepared, your finances hopefully won't suffer too much.

What next?

Build up a rainy day fund with the right savings account

Compare insurance quotes to make sure you're fully covered

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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