September 15, 2020
How much should I save in my rainy day fund?
“We all need to put aside some money every month to prepare for unexpected expenses”
For example, car repairs, a broken boiler just as winter sets in, etc. But how much should you save in your rainy day fund?
How much should you save?
Although you need to have enough money put aside to cover the cost of an emergency repair, it’s also essential to have plenty of money to cover you for a few months in case of unforeseen circumstances. For example, if your relationship broke up or you were made redundant, you’d need to have enough money to help you get back on your feet.
You don’t need to put huge sums of money away every month if money’s short; saving just £2 every day adds up to £730 over a year. As a rule of thumb, you should aim to have enough money put aside to cover three months’ outgoings in case of emergency. Put the money into an instant-access savings account, so you’re not tempted to spend it.
Don’t go over the top
Once you’ve accumulated three months emergency money, use any other spare cash to get rid of debts and reduce the amount of interest you’re paying.
How to save regularly
The easiest way to get into the habit of saving and to get your money working for you is to set yourself up so that you automatically add a small amount each month to your savings pot. In no time at all, you’ll have accumulated a nice chunk of savings without even realising it.
The best way to make sure that you save regularly is by setting up a standing order from your current bank account into your chosen savings account.
When to save
It’s no good trying to put money aside at the end of the month when you’re short of cash. Put your standing order in place to take money out just after your monthly wages go into your bank account.
Some employers offer a savings scheme; if there’s one on offer where you work, it’s worthwhile looking into it and maybe joining. Such schemes can make saving even easier because the money is taken directly out of your pay, along with your tax and any insurances.]
Earn interest on interest
As your savings pot builds up, it will grow faster and faster, even if the amount you pay in each month is small. That’s because every time the interest you earn on your money is paid into your account, it begins to accrue interest too. That’s called ‘compound interest,’ and over a longer term, it can make a massive difference to how much your savings are worth.
How much can you afford to save?
If you find that you have a little money left at the end of each week or month, that’s great; you are already in a position to start saving this amount at least.
Even if you find there’s usually nothing left at all, it doesn’t mean that you’ll be unable to save. While you can’t often change how much money you’ve got coming in, you can certainly change what you’ve got going out. Try to trim back on luxury items wherever you can, or get rid of debts to save yourself interest charges.
How much you save into your rainy day fund will be dependent on your monthly outgoings. Ideally, you should aim to have enough money put aside to cover a full three months’ expenditure, as well as a few hundred pounds on top of that for emergencies such as a broken boiler or a car breakdown.
Set up a direct debit or a standing order to move whatever you can comfortably afford into an instant-access savings account so that you’re making a small payment each month, ideally on payday.
See how Crystal can help you
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