Creating a household budget is a sure-fire way to improve your money management. However, the success of your budget depends on what you include in it. If you want to create a household budget that works, you’ll need to ensure it incorporates all of your income, as well as every expenditure.
One thing that many families forget to include in their budgets is an emergency fund. This should be a separate pot to your savings account, earmarked only for genuine urgent expenses. When you’re trying to make the most of your money, it can be tempting to overlook the importance of having an emergency fund, but it really is one of the most important things in your budget. To find out why, take a look at these five reasons you need an emergency fund:
1. Peace of Mind
First and foremost, having an emergency fund will give you peace of mind that you’re able to cope with an unexpected expenses or costs. When you’re struggling to make ends meet, the thought of having an unexpected bill to pay can be a source of constant worry.
It’s no secret that money worries can cause physical and emotional stress, so it’s important to do everything you can to minimise any pressure you’re under. When you’ve got an emergency fund to fall back on, you can begin to relax a little more and avoid the anxiety that money troubles bring.
2. Household Safety
When something goes wrong at home, it can affect your lifestyle, but it could also have an impact on your safety. A faulty boiler or a problem with the electrics could potentially harm you, your family or your guests, for example. Due to this, it’s vital you can fund essential repairs as soon as they’re needed.
People tend to assume that major household repairs are always expensive, but this isn’t necessarily the case. Take a look at this guide from Boiler Central outlining the cost of a new boiler to see just how budget-friendly an upgrade can be. At Boiler Central, being able to purchase your boiler online and arrange professional installation ensures the cost is kept to a minimum. You can also take out boiler insurance to ensure you are protected if anything happens to your boiler.
This means it won’t take long for build-up an emergency fund that’s capable of covering these expenses when they crop up. Within a few months of saving, you could have the back-up you need to keep your home safe.
3. Insurance Excess
If you have an extensive range of insurance policies in place, you might assume that all your unexpected essential expenditure will be covered. However, it’s important to read the terms and conditions carefully before you make any assumptions.
Most policies have a compulsory and voluntary excess amount, which means you need to make an initial payment when making a claim. It’s not unusual for insurance excess payments to run to hundreds of pounds, so you’ll want to ensure you can access these funds if you need to make a claim for any reason.
By having an emergency fund to hand, you can ensure that you’ll have the cash ready to make any such payments, if you need to do so. While insurance can be a great way to protect yourself, your family and your property, policies do vary, so it’s important to know exactly what’s covered and what level of excess you may be liable for.
4. Car Repairs
If you rely on your car to get to work, do the shopping or take your kids to school, then it’s an essential part of your household. Unfortunately, maintaining a vehicle can be costly. In addition to paying for an annual MOT, car insurance and petrol, you’ll need to bear in mind that you could be faced with car repair bills at any time.
Furthermore, vehicle repairs can be expensive. It’s not unusual for people to spend hundreds of pounds to ensure their car is roadworthy, even if they drive an older model. If your car begins to malfunction, it can cause serious disruption to your day-to-day life if you aren’t able to get it fixed right away. By having some money stashed away in your emergency fund, however, you can ensure that you’ve got access to the cash you need at any time.
5. Unplanned Travel
When money’s tight, you might decide to forego your annual holiday and have a staycation instead. This can be a great way to make some savings while still having fun as a family. There are times, however, when travel may be essential. If a family member suddenly becomes unwell, for example, you may want to travel to their home in order to be with them. Alternatively, you may be asked to travel for work purposes and need to pay for expenses until you’re able to reimburse them.
When you’re travelling at the last-minute, it can increase the cost of flights, train fares and accommodation. Due to this, an unplanned excursion could easily cost a thousand pounds or more. As most people don’t have this amount of money to hand, you’ll want to be able to fall back on your emergency fund, if you need to.
Protect Your Savings with an Emergency Savings
If you’re making regular contributions to your savings account, it’s easy to think that you don’t need a separate emergency fund. However, dipping into your savings to deal with emergencies can make it harder to hit your savings goal. Furthermore, once you begin making withdrawals from your savings pot, it becomes harder to resist taking money out for non-essential purchases.
When you create a separate fund for emergencies, you can still continue to save at the same rate. This will ensure you’re able to hit your savings target and reap the benefits that you’ve planned for yourself and your family.
Remember – you don’t necessarily have to contribute a lot to your emergency fund every month. If you can only afford to begin putting £10 or £20 a month aside for emergencies, it’s still well worth doing. You’ll be surprised at how quickly it adds up and relieved if you ever need to use it!