Lesson 5
Sizing Your Emergency Fund
Size a cash reserve from the costs you can’t stop, start with a buffer you can fund, and keep it where a recession can’t shrink it.
Builds on
The shock absorber
The boiler dies in January: £1,200, due now. Without cash set aside, that bill goes on a card or an overdraft, and a one-off shock becomes a monthly cost. An emergency fund is a shock absorber: cash you can reach quickly, which takes the hit so the rest of your plan doesn’t have to. Like a real one, it has limits. Once it’s been used, it needs rebuilding before the next bump.
Build it from what you can afford. If essentials or bills are already at risk, get free debt advice first, and don’t leave a bill unpaid to hit a savings target. (Source: MoneyHelper, Debt advice locator.)
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