Don't drown in debt

Get out of debt first: If you have significant debts then any money you manage to make or save should be put straight into paying them off. Seriously, having money in a savings account if you have debts is a mug's game. Unless your debts are 0% credit cards or the basic student loan then you will be losing money by keeping some in a savings account while you're paying interest on your borrowings. So if you have major debts right now, have a look at our article on how to get out of debt and follow the steps in there. Once you have paid off the debts you can start on your savings safety net.

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• Work out how much money you need to cope each month
• Find out how to save even when you don't have extra cash

How long could you manage if you suddenly lost your source of income? Six months? Six weeks? Six days? Do you just about manage from day to day? Or do you even struggle to cope with paying your debts each month?

Think about it – no really, face it for a moment: do you have money stashed away anywhere that would keep you going if you lost your job, got ill or had some other personal crisis? If you have income protection insurance, or critical illness insurance then those should help. But an even better solution for most people is to have a lump of money stored away that they do not touch to cover them in case the money stops rolling in.

Very few of us have this, though. A report by Yorkshire Building Society says that an average Briton's savings would only last 52 days if they were unable to work. I know people who wouldn’t cope for a week if they suddenly didn’t earn. That’s a very vulnerable position to be in.

Get yourself sorted

Now, are you sitting down? Good, because this might hurt: the amount you need to put away is between three and six times the amount you need to keep yourself going for one month. In other words, you should stash away enough cash to keep the roof over your head, and body and soul together, for at least three months and ideally, for six months.

Generally speaking, people have found that it can take up to six months to get yourself back on your feet after a blow like a divorce, job loss or bereavement. These are the kinds of things you need to protect yourself against financially. That’s why advisers and all the big investors say that you need to set up a savings safety net to cover you for this period.

Investors say it, by the way, because you should have money you can access quickly and easily at any time rather than having to dip into your investments. Investing is for the long-term and the best returns tend to come from products that go up and down a lot in the short-term (like the stock market). Long term these investments do well, but if you suddenly need to get hold of your money you could find that your investment is in a low period so you won’t have as much as you thought you had.

You need to have your savings safety net money in a nice, safe savings account for your emergency fund so that you can get hold of it easily and you can know that your investment won’t suddenly tank just at the time you want to get it.

How much does your month cost?

Now, the next step is to do a budget. See this article on how to do a budget for ideas on what to put in your list. It doesn't have to be exact - just write a rough list of the expenses you have each month including your mortgage or rent, your utility bills, food, phone, travel, basic clothes and some extra for household expenses.

Add up that list (or just click 'calculate' if you're using an online budget calculator) and there you have your monthly budget. This is the amount you need to have to keep the roof over your head and body and soul together.

Now multiply this amount. Ideally you need to have at least three times this amount saved up in your savings safety net - in fact, having six times that amount would be even better. But aim at least for three times that amount. So, if you've worked out that it costs you £1,000 a month just to pay the bills then you should aim to put away between £3,000-6,000 in your savings account.

Set up a savings account

The money you save for your savings safety net needs to be put into a high-interest savings account and left there. Have a look here for the best savings rates and open up the best one you can find. Of course, savings rates often change so you should keep an eye on your account to make sure that it's the best one. Keep checking back once every three months or so to see if your account is still in the top few. If it has dropped down then move your money to the current best buy.

Start putting money into it

Yeah right. Easy huh? Now there are two ways you can do this:

1. You set up a standing order from your current account every month - as much as you can afford - into that savings account until you have enough.
2. If you have no extra money each month, you find ways of saving and making money

Now, we have a very comprehensive article here about how to save when you don't have any money so have a look at what that says. Remember that the main ways to do this are to a) save money on bills and other spending, b) make extra money where you can and c) throw what is left over into your savings account until you have reached your target.

• Start with your bills. Go to our Best Buys section here and switch all your bills to cheaper versions.
• Then look at your spending. See how to get cheaper food in this article, cheaper clothes here and cut down on your fuel bills with these tips.
• Also, see which 'little luxuries' you can cut out like a morning latte on the way to work, a weekly takeaway or a book-buying habit. See where you can make a cut in your weekly spending and you will find you will have more money each month to put away.
• Finally, take a look at the ideas in our 'Making Money' section for ways of increasing your income. There are lots of things you could do in your spare time, or with your spare space, that could make you money. This money can be put into your savings account to help build up your pot.

Do NOT touch the money

...unless you have an emergency. Really - do NOT touch this money at all unless you really, really have to. If I hear of you taking some of that money out when there wasn't a dire need I will come round your house and tell you off!

This money is only to be dipped into if you lose your job or have some other event that stops you making money each month. It's your safety net and it needs to stay intact until you need it.

Related articles

• How to save when you don't have any money
• Best savings accounts
• Get rich on 1/2 a day a year