Following on from Last Weeks Article I want to answer the below:
So how do you build up an Emergency Pot in 4 simple steps?
Work out how much you need in your emergency pot. If your expenses are £3000/month you need between £9,000 (3 months expenses) and £18,000 (6 month expenses) If you already have this saved up great, but still go to step 2.
Now you know what your target is, open a second bank account. It doesn't matter who you bank with and where in the world they are, you will want to open an online savings account, each bank will call it something different: "e-saver", "online saver", "Flexi-saver", open another bank account. And do not apply for a card for it.
Budget. In order to save anything you need to know what you’re earning and what you’re spending, Sounds simple right? But most people don’t have a clue. Make sure you spend less than you earn. I read an article recently that said on average people waste between 10-15% of their salary, now that could be leaving the a/c on all day when you’re at work, or still paying for a magazine subscription you don't read, or a direct debit to your old company union. Get a list of all your direct debits and work out which ones you don’t actually need. Once you know the amount you can save go to step 4.
Are you ready? Pay yourself first.
I've covered this a few times in articles and videos: there are basically two ways to save.
One is to spend and then save whats left. The other is to save and then spend whats left. If you’re serious about building up an emergency pot or any type of savings for that matter you need to PAY YOURSELF FIRST.
If your goal is £10,000 and you can save £500/month it’s going to take you 20 months to build up your emergency pot, providing there’s no hiccups along the way. So set up a standing order for the day after payday for £500 to go to your new emergency pot. No ifs, no buts, think of it as a bill. You will thank yourself for it later.
Thanks for reading,
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