What are the different ways to create an emergency fund?

The term emergency fund refers to the monetary amount required to cover necessary expenses when financial circumstances change. According to a source, experts advise six months rent as a sufficient amount.

The research signifies that a one to two-week emergency fund buffer should range between £585 and £1170. However, the personal expenses might vary based on different locations. For example, a person from London with no children incurs a monthly expense of £2,973.

Therefore, the person’s three-month living cost would amount to almost £9,000 and six months would equal £17,800. Likewise, the average living cost of a person in Manchester would vary between £5,000 and £10,000 for three to six months.

5 Effective ways to create emergency funds

● Take a payment holiday

The pandemic has increased the debt of a breadwinner. Therefore, lenders have started providing payment holidays to borrowers. However, the former only provides this if the latter has a previous or ongoing money borrowing relationship.

Moreover, a payment holiday a great opportunity for money borrowers to recover from existing debt by increasing household income. It avoids the repayments of credit card, mortgage, hire purchase, or loan debts for a certain duration.

The accumulated savings in the bank account also earn additional interest rates. Therefore, it provides an opportunity to build faster cash for building emergency funds. Moreover, people that have recently become unemployed can receive various government financial aid.

● Declutter debt

Consolidating debt is the easiest method of decluttering debt as it allows making a single repayment. Moreover, it ensures that all repayments get covered and avoids defaulting and late payment charges.

Another method is by making instant repayments for small debts. The easiest way of covering these repayments is by avoiding savings or using offset savings. However, the former could refrain from boosting the emergency funds and stir the existing savings.

But clearing the existing debt would lower the existing debt on loans. Likewise, pursuing offset savings would decrease the overall repayments or loan duration. Therefore, it would provide a chance to create more savings and build larger emergency fund pots.

● Scheduled savings

Separate a portion of the monthly income into savings account with scheduled payments. Optionally, use budgeting and money management apps to make use of change while completing everyday transactions.

Besides this, you can even avail long term loans in the UK to pay off existing debt and incur a large sum of money. Such loans provide £25,000 to £2.5 million to a person. Even direct lenders that offer such loans provide between £1,000 and £100,000 for one to twenty-five years.

Therefore, the amount would increase interest on account savings, clear your existing debt, and provide sufficient time for covering the new debt.

Hence, you can immediately create emergency funds and even schedule savings to build a sufficient disposable amount for the future. A good practice would entail scheduling the savings on the payday.

● Make use of saving opportunities

You would often receive a cash influx from work, inheritance, monetary gifts during events, tax refund, etc. These opportunities keep arriving and provide an instantaneous chance of creating emergency funds and savings.

Besides this, you would regularly incur chances of saving cash through apps, cashback, coupons, offers, etc. Supermarkets even provide clearance sale and price drop alerts to regular buyers.

Additionally, the government offers various benefits and financial aid to people who recently become unemployed or monetary help. These can enable the borrower to save cash.

Such instances would also help to reduce household expenditures and increase monthly income. Instead of reusing the money for taking a sports package, travelling, or other expenses, create an emergency fund by investing in a savings account.

● Increase cashflow

There are many methods of earning passive income besides making investments. Some of them include taking a second job, renting a home, space, or device, selling unrequired items, etc.

Other passive income methods include affiliate marketing, sales funnel, app development, generating royalties, cashback credit cards, loan platforms, etc.

Business owners can increase cash flow with higher service or product charges, actively sending payment reminders, expanding the sales market, etc.

The increased cash flow from these activities can help create emergency funds, savings and even pay off existing debt. Besides this, you can even switch a loan to a better lender that provides lower interest rates and other benefits.

The decreased monthly repayment would help to boost the monthly income and savings. You can even avail of loans in the UK within 15 min to increase monthly cash flow.

● Other methods

You can even cover costs with different insurances. For example, income protection insurance covers bills during unemployment and inability to work. Similarly, critical illness cover support bills during illness and injury.

Also, health insurance can help to pay medical bills. Likewise, home insurance helps to pay for expensive property bills. Car insurance can help to cover accident, damage, theft or vandalism to your personal vehicle.

Therefore, the expenses of the household diminish and create emergency funds. You can even avail of promotional credit cards that come with zero interest and pay off existing debt. It will also provide funds to cover expenses and provide money for different occasions. Also, don’t stop pursuing other saving goals after creating emergency funds.

Olsen Breet

Olsen Breet is our in-house Financial Expert at EasyPolicyLoans, with more than a decade of writing for various finance companies in the UK. He has got this knack for turning even the trickiest money matters into something we can get our heads around. Before he started sharing his wisdom here, Olsen was playing with big numbers and advising on loans at a bank. He graduated from University of Glasgow, grabbing a finance degree before jumping into the deep end of the financial pool. Olsen’s our go-to guy for making sense of market trends and is always ahead of the curve.