The secret to building an emergency fund

piggy bankPeter Byrne/PA Wire/Press Association Images

A recent survey from First Direct found that 28% of households have less than £250 in easily-accessible savings. Meanwhile 21% have no savings at all. It's hardly surprising therefore that 32% of people admit they would be unable to cover their rent or mortgage at all if they were to unexpectedly lose their main source of income.

The experts recommend you have enough to cover at least two months of outgoings in case of emergency. This is just a pipe dream for the vast majority of people - but it doesn't need to be.
There are five straightforward steps you can take which will mean anyone can build up a suitable pot of savings.

1) Work out what you need

This means looking closely at your outgoings and working out what you can cut to the bone. In a good month you might spend £1,200. However, with some cutting back, shopping around and sacrifice, if the worst came to the worst you may find you can get by with little more than £500 a month. This means your savings gaol is £1,000.

2) Cut your costs to the bone

Don't wait for the emergency. While you're building up your savings you need to batten down the hatches and live a frugal life. Make those sacrifices, shop around, choose the cheapest and save everything you can. By cutting all but the bare essentials there's every chance you can put aside £100 a month.

3) Increase your income

Bear in mind this is a short-term thing, so can you make any cash? Are there any benefits you haven't applied for? Could you sell anything on eBay, can you make money on the side through something like babysitting, cleaning or gardening in your local area? You'll never know until you ask. You could stand to make £50 a month.

4) Be ruthless

If these steps aren't enough to take you to your goal within the year, you need to seriously consider all your options. Could you forgo your rent and move in with friends and family? Could you compromise on your property or your lifestyle? Could you take in a lodger? All of these things could make a major change to your financial position and transform your savings potential.

5) If all else fails, look at credit

Clearly savings are the only real way to stave off a crisis. However, if there's absolutely no chance of sorting this in the short term, then you need to make sure you have emergency credit in place. If the worst came to the worst it would be terrible to borrow - but it would be a heck of a lot less terrible if you were doing so at 0% for two years.
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