How to deal with unexpected costs

Surprise bills can happen at any time. Maybe the car breaks down, the washing machine stops working, or your pet needs an emergency trip to the vet. If things are really against you, it could all happen in the same week.

Unfortunately, there’s no way of telling if or when these costs can pop up, which is why it’s important to save into an emergency fund. Being prepared for the worst could help to give you more peace of mind, and it could also save you money, as you won’t have to use a credit card or overdraft which charge interest.

Start saving for emergencies

If you can afford to, it’s sensible to have a good savings buffer built up to cover whatever life throws at you.

If you’re struggling to save, it’s a good idea to start by going through your income and outgoings to see if there’s anything you can cut back on. The easiest way to do this is to sort out your ‘needs and wants’ to see where your money should be focused.

For more help on savings, check out our ‘Sort out your finances’ articles.

Set a goal and save regularly

Next, you’ll need to decide how much you need in your emergency fund and make it a goal. A good rule of thumb is to have enough to cover all your essential outgoings for at least one month, but ideally for 2 or 3 months.

But don’t get overwhelmed with large figures, it’s best to start small and just save regularly.

Pick a small weekly or monthly amount - it could be £5, £10, £20, or even £100 – whatever works for you.

Once you’ve been saving regularly for a while, you may want to consider increasing the amount you save. You may start saving £10 a month and realise you can increase this to £20, doubling your regular savings amount.

Read our blog post on how to save on your bills.

Be strict about what it’s for

Saving money is great, and it can feel good to see that money build up over time. However, you need to remember that this money is only for emergencies.

If you dip into it for other reasons, you’ll start to eat away at your savings and it may not be enough to help if unexpected costs pop up. Decide what you class as an emergency and only use this money for that.

Top it back up

If, or more likely when, you use your emergency savings account, be sure to top it up again for the next time you need it. Make a note of how much you take out and plan how long it’ll take you to repay – for example, if you take £100 out, that’ll take 5 months to repay at £20 a month.

The important thing is to keep building the pot, as you never know when you might need emergency cash again.

Put it in a different account

It can help to keep your emergency fund separate from your other money - so you’re not tempted to dip into it. Having it separate also makes it easier to see how much you’ve got saved.

Things like Savings Pots are perfectly designed for this. They make it easy to move money back and forth from your current account to your Savings Pot. They also offer a lot of flexibility, meaning that it’s quick to save, but also gives you instant access when you need it most.

Savings account with interest

Your emergency fund needs to be easy to access in an emergency.

Because of this, you’ll want an instant access savings accounts. These are designed for you to dip into quickly, without being charged for it.

Another option is a regular savings account, which rewards you with a higher interest rate for putting away money each month. But make sure you read the small print, as some accounts have restrictions on accessing your money.

Good luck and happy saving!