Emergency Account

Once you have sorted your budget and reduced your outgoings, it is time to start thinking about the reality of modern living. Stuff goes wrong....normally when you least expect it. And for the most part, when stuff goes wrong it costs you money. Right now in fact I am attempting to replace a washing machine door seal outer spring with great frustration, and will inevitably end up needing to call a service engineer! If everytime something like this in life comes and bites you (job loss, car breaks down, boiler needs replacing) you will need money, and if you have to borrow it, you risk paying not just the washing machine bill, but any interest on borrowing costs too. Ok the washing machine was a small example, but a new boiler would be £3k, and what if you lost your job for 6 months? You need an emergency account with easy access cash to cover these expenses, and an account with as higher rate of interest as you can find. Look at your budget. Remove the luxuries you have in there, what are your raw essential living costs. Think mortgage/rent, utility bills, council tax, food, and essential travel costs. What do you need each month to cover those costs. Maybe it is £1000 per month? Alright so in the current jobs market how long would it take you to find another job....6 months? So 6 x £1000 = £6k. That is the figure you want to be aiming for in your emergency account. You are not going to be dumping £6k straight into that account though. This needs to be manageable. But building up that emergency account needs to be high up there on your priorities for wealth. Look back at that budget. How much spare cash do you have now you are budgeting. Some of that needs to divert to your credit card and other debts because you don't want those, so you need a payment plan there that removes these debts over a year or so. But what is left then? Some of this cash can start to go towards your emergency account each month. Can you build your emergency account up over a few years perhaps - diverting a few hundred pounds a month there? Once you have an emergency account it will suprise you how free you start to feel. You stop worrying about things that would have crippled your thinking before. And just as important you can start to look forward to now investing your spare cash, and I have just finished reading a great book to get you started with this.