Everyone should prepare for sudden expenses by regularly putting money aside for things like a broken washing machine or boiler – but there is such a thing as too much emergency cash. It’s best to split your savings, so you’re keeping some to hand for emergencies and putting the rest where it can work harder for you.

How to build up your fund

You want to get your emergency fund set up as soon as possible, but like with all savings, it’s best to keep to what you can afford and make sure to save regularly.

Saving smaller, regular amounts is often more effective than saving larger amounts now and again. This is because you get into the savings habit, and you’re not overcommitting too much money. It also lets you budget your spending from week to week or month to month more effectively.

If this isn’t possible, save what you can as regularly as you can. Every bit makes a big difference.

How much should I save?

You want to be able to pay for an unexpected repair, but it’s also important to have enough money for a few months in a sticky situation.

Say you lost your job or split up with your partner, and needed some time to get back on your feet – you’ll want a bit more than the cost of a new boiler or washing machine.

If money’s short, start small

For example, saving just €3 a day adds up to €1,095 over a year. As long as you’re getting into the savings habit, you’re making progress, and small sums quickly add up.

The rule of thumb

A good rule of thumb to give yourself a solid financial cushion is to have three months’ essential outgoings available in an instant access savings account. So if you lose your job, for example, it’ll help buy you three months to find a new one.

So, if you spend €1,000 a month on mortgage or rent, food, heating bills and other things you can’t live without, you should aim for €3,000 in emergency savings.

But, remember any amount saved will help you if you have to pay for something you weren’t expecting.

What to do before you start saving for emergencies

It’s great that you’re starting to build up your emergency fund, but before you pile all your spare money into it, make sure you’re ready.

If you have:

  • >credit card debt
  • >unauthorised overdraft
  • >Pay-day loans
  • >Door-to-door lending or home credit
  • >arrears on your mortgage repayments

it would be cheaper in the long run to pay these off first.

That means if you’re keeping up with mortgage repayments and any other credit you have is low cost, temporary or well under control, you should definitely be adding to your emergency fund.