Do you really need an emergency savings fund – and if so, how much? – UK Times

Money, money, money. We all need some, we all spend some. How about saving?

Everyone knows it’s important to have cash behind them, whether for a rainy day or emergencies, but sometimes that’s easier said than done.

As recently as 2024, a report from Yahoo Finance claimed 12 per cent of low income families have under £100 in savings.

That makes it vital that people have information on how they can get started, just as much as how high they should aim to save over time.

And breaking down your savings journey into manageable steps is all-important from a mindset perspective, whether that means your first £100, your first month’s rent or your first £1,000.

Let’s look at how to do it – and how far you need to go.

More than ‘none’ is your first port of call

Don’t let “starting small” mean “don’t start at all”. It’s impossible to over-emphasise the importance of this.

Regardless of if the only way you feel can get started right at this moment is with a 1p challenge or similar, you have started, and a month from now you’ll be seeing the effects of it – and be mentally ready to take further steps. And at the end of a year of that challenge there will be over £600 in your account.

If you want to take a more structured approach to saving certain amounts, first ensure you are aware of your ins and outs each month, whether that’s your personal funds or family-wide income.

Budgeting isn’t about stopping you spending money, it’s about ensuring you are not overspending and helping allocate money to the most important places first – which should include funds towards a savings pot. You can’t do that properly unless you know where your income and expenses are, so take the time to assess that properly with this guide.

Then, whether it’s starting with £5 a month or £500, you can begin to set yourself some milestones.

Aim to build, but how far depends on you

Listen to financial experts and most will suggest you need between money saved to cover you for between two and six months.

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Capital at risk.

Terms and conditions apply.

Go to website

That’s quite a range though – so what does it mean in practice? First of all, note that it’s not two (or four, or six) months worth of income.

Now, the numbers here are not important, they are just for displaying an example. If you’re on a salary of £37,000 annually (the UK average in 2024, across all industries) then that’s about £3,083 a month before tax, national insurance and anything else that comes out of your salary before it lands in your bank. It might therefore also be before student loan repayments, automatic pension payments and all sorts, so the standard advice isn’t necessarily that you need £3,083 x two (or four, or six) months as savings!

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Instead, work out your monthly expenses: rent or mortgage repayments, food bills, energy and essential household bills plus anything else you know is a regular cost which comes out of your account. Exclude (for now) your personal spending and (obviously) any amounts you already set aside monthly for savings (since if you need to dip into savings down the line, you’re obviously not putting money into it at that point).

Once you work out how much you need to spend a month (budgeting again, see above), then you can start to work out how much you’re comfortable having behind you: if you’re young, living with your parents, in a stable job and expenses are £1,500 a month all in, it’s feasible you might think three months’ worth of that leaves you protected in case of any surprises, at least initially.

On the other hand, if you have family members who rely on you financially, if you’re in an industry which is changeable by nature or are self-employed, you might well be looking to build up a significantly chunkier pot than that.

The numbers above are not important. What matters is your personal circumstance, and (again) that you can make the effort to start saving something, whether aiming towards that first £100, the second one or the hundredth hundred.

Laura Pomfret, of female money platform Financielle, says emotion can go into the eventual target number just as much as costings.

“It’s around how you feel: you might do workings and then feel better if you bump it up to the next round number. Some people might want more than a standard three months,” she explained to The Independent.

“In addition, if you feel something might be on the horizon like baby planning, or it might be a relationship which might not work out or rumblings in industries which could have redundancies, these factors all impact on how much you want to target saving eventually.

“It’s OK to overlay emotions to an initial number, but be aware of life events.”

Beyond the actual number, Ms Pomfret also served the reminder to ensure the actual savings were capable of inflation-beating returns, in a high-interest savings account rather than just being accumulated in a regular current account.

Don’t stop!

Once you’ve hit your savings targets, first of all, congratulations! That’s a huge milestone not just in terms of your wealth, but in securing future you’s ability to handle what life might throw your way.

But don’t let that be the end of your active attention to your money matters.

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There are a range of options for the question of what’s next, and while it’s true that some may necessitate further learning, discussion or even professional advice, those are the options which can really generate long-term wealth for yourself or your family: pensions planning, for example, or investing in the stock market.

Ms Pomfret notes that a “chunkier emergency fund” might even be where savers go next, or saving separately with a more specific goal in mind – a new house, car or holiday maybe – but the important thing is that they are starting to actively manage their money at that point, rather than waiting for shocks which can adversely impact them.

“The bulk of our community came to us to get better with money. Maybe some just enjoy this topic and they shop around naturally, but others need guidance or have never have thought of it. Conversation around it therefore helps the idea of ‘doing’: if they don’t think about it as a matter of course, a call to action can really get them moving.”

Which brings us back to the original case in question: you must proactively make the first moves to building an emergency pot and that means purposefully, actively starting right now if you haven’t already – no matter how small those first steps are.

When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.