Emergency Fund: How Much is Enough?

Here at mynestegg, the fun part of our job is hearing about all the fun things our customers are doing with their savings. We make saving simple, and you enjoy holidays, cars, weddings - the list goes on. 

But there’s a serious side to saving too. Emergency savings. 

A lot of people like to have a little set aside in case of emergencies, but knowing how much you need in that rainy day pot is always difficult.

So let’s look at your emergency savings and see if we can simplify that too.

How much do I need in emergency savings?

Ah, the million-dollar question. Wait, don’t get carried away! You won’t need a million dollars - or pounds - in your emergency fund. 

You need enough to cover your essential outgoings for at least three months. That’s the standard advice. Then if you’re unable to work, you’re not immediately scrabbling around to find enough to get by.

But what’s an essential outgoing? We’d suggest the following all count.

• Housing - so that’s three months’ rent, or mortgage payments
• Food - enough to cover the weekly shop for twelve weeks
• Utility bills - heating and electricity are must-haves, so make sure there’s enough to cover your bills - especially if you need your emergency fund in winter when it’s darker and colder
• Mobile phone/internet bills - if you’re without an income because you’re between jobs, your phone and an internet connection are essential job hunting tools
• Travel expenses - petrol or public transport fare for job interviews, hospital appointments and the like

What’s essential to you depends on your circumstances. Maybe you need to factor in the cost of childcare, nursery, or keeping your pets fed and looked after. Just work out the minimum you’d need to live comfortably for three months, and aim to have an emergency savings fund that’s enough to cover the expense.

That’s your starting point.

Are there any other emergencies I should plan for?

Did you know the average payout for a general insurance claim is between three weeks and three months?

That’s not good if your roof is leaking right now, or your car’s been written off because of someone else’s bad driving.

You might want to have a little extra in your emergency fund to cover things like home or car repairs, just in case you’re left out of pocket. The last thing you want to do is miss a few meals because you had to pay the emergency plumber in cash and your insurer is taking their sweet time to stump up on your policy!

Calculating your emergency savings

Once you add up those essential monthly expenses, and add on a buffer to cover any other emergencies, you’ll have your figure to aim for. 

Because you’ll need the money quickly, your emergency fund shouldn’t be in a Stocks and Shares ISA. It’ll need to be in a cash ISA or savings account that you can access immediately. 

That means it makes sense to use a Stocks and Shares ISA for longer term savings.

If you’ve got your emergency fund sorted and want to start building up savings over the medium or long term, take a look at our ISA calculator. It’ll give you a great indicator of how your savings could grow over time. 

And if you’re wondering where you can cut costs to put more away and save faster, our Nest Egg Building Diet is a great place to start! 

We’re always looking to make saving simpler. To learn more about how to set goals, save for the future, or choose the right pension or ISA, visit the mynestegg Knowledge Hub.