While managing daily expenses, many Britons overlook a crucial financial step: building a proper safety net for unexpected setbacks. New research reveals the stark consequences of being unprepared, with the average person facing significant unplanned costs that can derail their finances for months.
The True Cost of Financial Emergencies
A recent study by Norton Finance uncovered that the average Brit spent £1,590 on surprise bills over the past two years. Even more concerning, 12% of respondents paid out more than £4,000 for unexpected expenses ranging from home and car repairs to family emergencies.
The research found it typically took people more than six months to recover financially from these surprise costs. Alarmingly, one in five individuals had to borrow money to cover these emergencies, creating additional financial pressure through debt repayment.
How Much Should You Really Save?
Despite these risks, Starling Bank data shows that 73% of the UK population has less than £500 in savings - barely enough for minor inconveniences, let alone serious financial emergencies.
So what's the right amount for proper protection? Anthony Fuller, chartered financial planner at Path Financial, typically recommends an emergency fund covering six months of essential living costs, plus additional buffer for unexpected issues like boiler breakdowns.
"You might want to allow more than this in some situations," Fuller tells Metro. "For example, if your income is variable, your employment is insecure or if you have dependents relying on you."
Christie Cook, managing director of retail at Hodge Bank, agrees with this approach, suggesting three to six months of typical bills, mortgage or rent payments. "For some people, particularly those that are self-employed or are freelance, aiming for the higher end of that scale can help provide extra peace of mind," she adds.
Practical Steps to Build Your Safety Net
Building such a fund might seem daunting, especially when living costs are tight, but experts emphasize starting small and maintaining consistency.
"The goal isn't to create a huge pot overnight," notes Cook. "The best thing you can do is set up a standing order to your savings account so that there is something definitely going in there each month, even if it's just a few pounds."
She recommends treating your emergency fund as a "must pay" bill, using the "pay yourself first" method where you transfer savings immediately on payday before spending on other things.
Anthony Fuller highlights that even modest regular contributions add up significantly: "even £10-20 per week could equate to £500-£1,000 after a year which is starting to provide some buffer against financial shocks."
Both experts suggest reviewing bank statements to identify potential savings. Surprisingly, 10 million Brits pay for unused subscriptions, while many others overpay for utilities like broadband when cheaper alternatives exist.
Where to Keep Your Emergency Fund
Choosing the right place for your emergency savings is crucial. Both financial professionals agree the money must be easily accessible for immediate withdrawal when needed.
"It should be kept in cash rather than invested," emphasizes Fuller. "You want the value to be stable." He suggests considering instant access cash ISAs, triple access savings accounts or premium bonds as suitable options.
Additionally, he recommends selecting cash products that generate interest: "for example, 3% interest on a £10,000 emergency fund is £300 per annum, so is well worth having!"
With job security concerns - including limited statutory redundancy pay and potential income loss from illness or dismissal - building a proper financial buffer has never been more important for UK households.
