If you’ve spent any time at all delving into the world of personal finance online, then you’ll no doubt be familiar with the concept of an emergency fund. It’s quite simply a sum of cash that you set aside to cover the unexpected financial costs that life can sometimes throw at us, and it give you some serious peace of mind.
According to The Money Advice Service, it’s sensible to have three months of living expenses set aside for a rainy day. I agree that this an excellent goal to aim for, and here are the reasons why…
It stops you from spending your money on things you don’t really want or need
Let’s say that you’ve carefully planned your budget, and you know that you can comfortably set aside £100 a month to go into your emergency fund. You set up an automatic payment so that as soon as you get paid, that cash leaves your current account and goes into your savings. This can cut down whimsical spending and ensure that you’re exchanging short term gratification for savvy financial decisions.
Many of us spend money simply because it’s there, without giving too much thought to the longer term consequences, and this has a serious impact on our ability to spend. Just keeping money in a separate account can make a big difference to your mindset and your behaviours.
It cuts down your stress levels
As a single parent, you’ll know that there are countless unexpected costs which can come out of the blue. Your boiler could break down, or you could receive a bill that you hadn’t budgeted for, or you could find that your kids are outgrowing their school shoes much quicker than you had anticipated.
If, in the back of your mind, you know that a financial emergency could be right around the corner and you’re not in a position to deal with it, then that can cause a lot of worry. On the other hand, knowing that you have a fund to help you out when things go pear shaped can really set your mind at ease. This can do wonders for your general levels of health and wellbeing.
It increases your confidence in the fact that you can manage on your own
Becoming a single parent after the breakdown of a relationship is always an extremely challenging time in anyone’s life. Often, your self esteem and confidence levels can take a knock, and you can find yourself doubting your ability to manage on your own. Regardless of how independent you might be, there are just so many things to deal with, and you often won’t know where to start.
When you start an emergency fund though, you’re taking real steps towards creating a secure and happy future for you and your children. You feel like you’re back in control, and ready to take on whatever life might send your way. It’s a very liberating feeling.
Starting your emergency fund might not be easy, but the first step is deciding that you’re going to make it happen. It may take a while, and you may make mistakes along the way, but a year from now, you’ll be so pleased that you took action.