Do you need an everyday emergency fund?

Do you need an everyday emergency fund?

 

Anyone who follows money saving bloggers or tips probably hasn’t got far without hearing of Dave Ramsey. From what I can gather, he seems to be the American equivalent of our own Martin Lewis, and has an immensely popular #babysteps program to get people out of debt.

You may be aware that “Babystep 1” is to save up $1000 (or £1000) in an Emergency fund, even before you start paying off any debts. The reasoning behind this is simple and very sensible – what if you lose your job / write off your car / become unable to work? Dave also uses costly medical bills as an example – (aren’t you so thankful this is something we don’t need to worry about in the UK?)

Either way, it makes absolute sense that you should have this money set aside so that such emergencies aren’t put on a credit card and get us into more debt. Of course, Dave stresses that this money is for real emergencies only and not, for example, designer shoes on 75% sale!

However, what about the times when you do see an absolute bargain that you would actually get use out of, your favourite band just announce a tour, or your best friend is planning an expensive hen/stag do abroad? Depending on your levels of self-control, the answer might be,  “Tough – miss out!”, or even worse, “I’ll use my credit card, just this once.”

Neither of these options are particularly helpful, as you either end up mounting up more debt, or missing out on the things that make up the fun in life.  I am going to digress here slightly to address the fact that for some people, an expensive hen/stag party or music gig is their idea of hell – in which case, obviously don’t go! This isn’t about finding money to fulfil social obligations, but rather for the things in life you absolutely don’t want to miss. The tagline of my blog is “low calorie budget, full fat lifestyle” and I am definitely not one to miss out on something that I want!

In the past, pre-children, I would often go along to gigs or events I wasn’t particularly bothered about because my friends / husband were going and I could afford it, and I have no regrets about this (especially now when I have no money and even less chance of a babysitter), but these days I am a lot more discerning and only go to the things I truly want to spend my money on. But month to month, I don’t have a great deal of spare money at short notice, such as having enough to buy tickets on the day of release because otherwise they will sell out.

This is where your ”Everyday emergency” fund comes in, and there are 2 ways you could find it. The first is to continue saving an additional amount in a separate pot to your emergency fund in the same way you managed to save up the first lot of money. You may only choose to have a couple of hundred pounds in this fund, or maybe a little more. I think £500 is more than enough unless you know you have a lot of big events to save for.

The second way to find this money is to take a couple of hundred pounds out of your emergency money to start you off. There, I said it. I hope I don’t have an angry pack of Dave Ramsey fans chasing after me for making that suggestion, but hear me out. Firstly, £1000 is significantly more than $1000, even with the current terrible exchange rate. (At the time of writing $1000 is actually £709) So in the UK if you follow his plan, we are actually saving a couple of hundred more than Dave recommends. Secondly, as I eluded to above, here in the UK most of us don’t have to worry about costly medical bills which Dave earmarked your emergency fund might well be for in the States.

The key is to transfer this money into a separate place from the rest of your emergency fund and to leave the rest untouched. You may even then choose to top it back up again over the next couple of months. And if you don’t spend your everyday fund and then have a real emergency, at least it is still there waiting for you.

I should also stress that even though I listed sale items as an”everyday emergency” – they really only are if it is something that you absolutely will use and get the value from. I am currently building my fund up and I can say that knowing that balance will go down if I spend it really does make me question whether I need a particular item or not – which can only be a good thing!

Hopefully most of us will never need to use our real emergency fund, but the “every day” emergencies are far more likely – so I think it only makes sense to budget for them in the same way. Having your everyday fund can mean that you get your bargain or social fix without having to reach for the credit card, which I’m sure Dave would agree, is a far better solution!

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