Unlike a surprise present or a spontaneous weekend away, financial surprises aren’t usually as nice and you’ll need to know how to save money to deal with them well. Whether it’s an urgent car repair, a broken boiler or a toilet leaking through the ceiling, not many of us can easily weather the cost of such events.
For women, knowing how to save money can be a matter of personal safety, allowing you to quit a job with a creepy boss or escape a bad relationship without having to worry about the rent. Whatever the scenario, burst pipe or broken-down relationship, it is important to know what can you do to make sure you’re prepared — and what can you do if you’re not.
Start building an emergency fund
It’s never too late to start saving. And the first thing to do is to work out your budget. Start with your outgoings (log on to your online banking where you’ll easily be able to see your standing orders and direct debits) and deduct them from your income. Work out how much you spend on food* and fuel or travel every month and deduct that too. From the amount you have left, decide how much you’ll realistically be able to save each month. Set up a standing order to send that amount out of your current account into a savings account on the day you get paid so you’re not tempted to spend it.
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If, however, once you’ve done your sums and your leftover amount isn’t looking too healthy, you might need to think about where you can make some savings. Sit down with your last three months bank statements or download an expense tracker app like Yolt, which helps you identify your major expenses. Once you know where you’re spending your money, it’s easier to see where you can cut back. If, for example, you find that you’re spending £50 a month on takeaway sandwiches, that money can easily be funnelled into your savings account and you can bring in lunch from home.
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Finally, make sure your savings account is easy to access and doesn’t come with financial penalties for withdrawing without notice. In a financial emergency, you’ll need to be able to access your money quickly and easily.
Check your insurance
Take some time to sit down and review your house insurance policy. Does it provide all the cover you need? Are you protected, for example, against emergencies like boiler breakdown, burst pipes or even your appliances breaking down? Paying a small extra premium each month can prevent you having to fork out a large sum in the event of an emergency. Before you take out extra protection, make sure you’re not covered elsewhere, for example, as part of your current account package. You don’t want to pay for the same protection twice.
Protect your family should the worst happen
If you have a partner and/or a family, it’s important to have adequate life insurance to ensure that in the event of a death, those who are left behind are protected. Simple life insurance policies don’t have to cost too much money and the healthier your lifestyle is, the cheaper the premium will be. A cheaper option is mortgage life insurance (otherwise known as decreasing term life insurance) which will pay off your mortgage in the event of your or your partner’s death. The amount you are covered for decreases over the term of your policy, as the amount you owe on your mortgage decreases.
The last resort
But what if you’re faced with an emergency bill that you can’t cover? It may be worth considering a loan to get you out of your hole. You will need to make sure that you can cover your repayments and that means making some immediate cuts. Can you suspend or cancel your premium TV package, your music streaming subscription or your gym membership to cover your loan repayments and get you back on track?
You could also ask family or friends for a short term loan. No-one likes asking for money, but you may find that they are happy to help you. Treat it a formal arrangement and draw up an agreement. It will make both sides of the party feel more secure.
With a bit of planning, and some careful consideration of your finances*, you can start putting together a contingency plan to cover you should life throw a nasty surprise your way.
