One Foot in the Save

This week for Finance Friday I’m talking about Emergency Funds. Each week I’ll receive at least 1 or 2 queries on Emergency Funds – what they are and why we need them.

Simply put, an Emergency Fund is money that you have saved to help you cover the unplanned. It can help you with anything from the car needing a new part to an unexpected loss of income.

The savvy finance folks will typically recommend that your Emergency Fund should have 3 to 6 months Living Expenses. But it’s important to remember that they are describing a fully funded Emergency Fund when they say this. As usual, I can only tell you what I’ve done from my experience so here is what I did…

When I made my plan to start attacking my debt, I first saved €1000 to my Emergency Fund. For me, this meant that I felt confident enough to start throwing what I could to my debt, knowing I had money there to fall back on should I need it. It also meant that I would have no need to use my credit card and further increase that debt figure. It was my secure lifeline.

Now that I am debt free, I have increased this to 3 month’s living expenses. I figure that if I were to lose my job, it would probably take at least 6 weeks to find a similar job, and a further 6 week contingency to find ‘a’ job. At this time, I feel my job is secure, but if I felt that changing I would increase to 5 or 6 months expenses. Remember this is Living Expenses and not full Salary.

The important thing to remember with Emergency Funds is to keep the money separate from your current account and away from temptation. It’s also important to remember that if you need to use funds from this account; that you need to replenish them from upcoming income. Of course it goes without saying that if you can’t manage €3000, aim for €1000; if you can’t manage €1000, aim for €500.

I’ve included an image I made a long time ago when I talked about Emergency Funds – but the message remains the same.

Let me know if you have any questions on Emergency Funds!

This week for Finance Friday we’re going to chat about Sinking Funds. These are simply a method of saving the money you need for once-off, annual or irregular spending events. To be honest, I’ve always just referred to these as Saving Pots/Funds, but it’s a good idea to use the term Sinking Funds so you can differentiate them from other big saving funds such as House Deposit or Emergency Fund.

The idea with Sinking Funds is that you assess what you need to save for and work out the total amount needed. You can use multiple accounts or something like Revolut vaults for each Sinking Fund or you can save in one account and track the amounts separately. I use Revolut vaults for mine.

When it comes to actually saving the amounts, you can choose to pay a regular amount to each, each month, ensuring you have the money available as you need it. Or you can choose to fill up each Sinking Fund over a specified number of months. How you choose to manage your funds is up to you – don’t let anyone that isn’t living your exact life tell you there’s a right or a wrong way! There are pros and cons to each way, just a matter of assessing which would work best for you.

The Sinking Funds I currently have are:

🚗 Car (Insurance, Service, Tax, NCT)

🏠 House (Household items, Insurance, Bins)

🌞 Holidays (Remember them?!)

🎄 Christmas (Gifts, Food, Decorations)

🎈 Birthdays (Gifts)

🎁 Occasions (Nights out, gifts)

⚕ Medical (Lenses, Prescriptions)

📱 Phone (For the day my phone gives up on me!)

Do you have Sinking Funds? Or do you need to know anything more about them?