Jul 07

How to cover for life’s unexpected expenses

A broken-down boiler. An uncooperative car. A faulty fridge. Life has many twists and turns, and unfortunately for your bank account, some can cost an arm and a leg to put right.

To deal with life’s little setbacks — and the big ones, too — it’s important to have a dedicated fund set aside for emergency expenses.

However, this is easier said than done. In fact, only 59% of consumers have £1,000 or more set aside for a rainy day, according to a survey by GoCompare.

If you’re one of the many Britons who doesn’t have a safety net to fall back on when times get tough, we’ve brought together these top tips for covering life’s unexpected expenses. Read on to find out exactly how to build a rainy-day fund that will help you deal with unforeseen expenses.


Set up your emergency fund

Piggy bank in life ring

If you’re serious about building up your savings, it’s important to skim some money off your monthly paycheque before you even see it and send that straight to a dedicated savings account.

If you leave your savings and your spending money mixed up in one current account, it’s way too easy to eat into the money you’ve set aside for emergencies without even realising it.

So, the first step in building up an emergency fund is to set up a separate savings account through your online banking. Don’t worry about getting a good interest rate at this point — it’s more important that your money is easy to access if you do need to dip into it, so keep things simple for now.


Set your savings goal

List of goals on a note pad

Once you’ve got your savings account set up, it’s time to sit down and work out how much you can afford to put into it each month.

Your goal should be to build up six months’ worth of expenses in your emergency account. If worst comes to worst and you lose your job, this will be enough to support you for half a year, giving you financial peace of mind.

It might take you a while to reach this goal, but it’s well worth it in the end, so keep at it when times get tough!


Start saving

Now that you’ve got a goal to aim for, it’s time to start saving. Here’s how.

First, work out your joint household income. Then add up all your essential monthly expenses (don’t forget the regular costs that don’t come out as direct debits, like petrol and the weekly food shop) and minus this from your total income.

What’s left is your expendable income: the money you’ve got left once you’ve covered the basics like food, shelter, and transport. If you’re starting from nothing, you’d be well advised to dedicate as much of this cash to your emergency fund as you can.

This might mean tightening your belt a bit for a few months and cutting down on life’s luxuries, but you’ll be thankful you did when the washing machine breaks and you’ve got enough in the bank to replace it. Of course, this is easier said than done: if you can’t see how you can cut down your expenses any more, take a look at our guide to living on half your salary for some top tips.

Once you’ve run the numbers and worked out the maximum you can commit to your savings account each month, set up a standing order through your online banking. Make sure the money leaves your account the day after payday so it’s separated from your spending money as soon as possible.


What to do once you’ve hit your savings goal

Happy woman relaxing

Once you’ve built up a rainy-day fund, don’t get out of the saving habit. While you might want to introduce a few more luxuries into your life now you’ve built up a safety net, it’s a great idea to maintain the momentum and keep setting money aside. However, you should put this towards paying off debt rather than building on your savings for now.

The average UK household now has a record £12,887 of debt before mortgages are even taken into account, according to a report from the TUC. Interest rates on savings are so low these days that you’re almost always better paying off debt than putting your money into a savings account, so it’s a very smart move to start whittling away at your existing debts once you’ve saved up six months’ worth of expenses.

Alongside paying off your debts, it’s also a good idea to spend a bit of your monthly income on getting all your devices insured if you haven’t already. This will help protect you from some big expenses down the line if a phone or laptop gets damaged, making it well worth the expense once you’ve built up your rainy-day fund.


What if you get hit with an emergency expense before you’ve built up your safety net?

Broken washing machine

Even the best laid plans can go wrong, and you may very well be hit with an emergency expense before you’ve saved up enough money to cover it.

If this happens to you, try not to get disheartened. Use what money you have saved up to cover what you can, and then consider borrowing money from friends or family to make up the rest. Of course, this isn’t an option for everyone. If you need a short-term cash injection to cover the rest of the cost, consider taking out a cash loan. However, avoid payday loans that require you to pay back one lump sum next payday, and go for something with a longer-term repayment plan, like a cash loan from H&T.


Everyone has to deal with unexpected expenses every now and then. If you stick to the tips outlined here, you’ll have a smart strategy for dealing with any bills that hit you out the blue.

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