Life can throw things at you unexpectedly, and when those things come with financial repercussions, it’s best to be prepared. But what would you do if the worst happens - your car breaks down, you need to find a new place to live or a big fat energy bill comes through? Although you may think that you can just cross that bridge when you come to it, it’s best to be prepared. A financial safety net, or ‘emergency fund’, is a pot that you can dip into should you need to. Setting money aside each month will help to build this up, and will prevent you from having to apply for expensive emergency loans.

So, why do I need a financial safety net?

Surprise costs can be quite expensive, especially if it’s something that you can’t avoid, or save up for…

Some of the most expensive things in the UK that might come as a surprise cost when you least expect it are:

• New boiler 
• Car repairs
• Moving home
• Vets bills 
• Replacing fence panels
• Water leak

Even if you do have insurance, claims can sometimes be complicated which can add time and hassle onto getting everything sorted out - especially if the claim is denied, or there is a delay in being paid out.

If you panic and need everything sorted quickly, then you may act rashly and take out a short term loan. This could a bad move as you could end up with expensive monthly repayments, or put yourself in more of a financial struggle in the future - you don’t want to mess up your credit rating with missed payments!

Why is a financial safety net handy?

Having a savings account that’s used purely for real emergencies (not just when you feel like dipping into it), is such a smart thing to do to help you out should an emergency hit. You never know when you could be evicted, have a relationship breakdown or need to pay for a repair - and you don’t want to be worrying about money in an already stressful situation.

They say ‘bad things happen in threes’, and if one thing goes wrong, it can be quite easy for things to snowball and you end up with a few problems at the same time. Imagine if your car breaks down and you can’t get to work, this could have an impact on the hours you’re paid for, or could put you job in jeopardy if your manager isn’t very understanding.

Putting in place a financial safety net means that you can have a bit of breathing space in a bad situation. You can take the time to shop around to find the best repair price, you could find a better home, or you can take the time to find a new job better suited to your skills, passions and lifestyle.

How much should my financial safety net be?

The general rule, according to the Money Advice Service, to putting together an ideal financial safety net is one that could cover you for 3 months of expenses. Make sure you’ve got everything covered from rent/mortgage, utilities, phone bill, any insurance payments, credit repayments and enough for groceries - you don’t want 3 months of beans on toast for dinner!

If you’re living with a loved one, remember that this shouldn’t take their income into account, so if the issue is a break-up, then you could live without them and on your own means for that time. You’ll also need to make sure you can get to the emergency fund easily, so don’t go for a savings account with a set locked limit (even if there is a better rate of interest).

Although this is a great general rule to get you started, it’s down to the individual how much you’ll actually need. For example, what happens if you’re unable to work due to an accident, but you actually need 6 months off? What happens if you can’t find a job that’s as well paid? Or you want to start afresh in a new career? To be safe, it’s probably best to squirrel away at least 6 months’ wages away into an easily accessible account. And, although it may be tempting, make sure you’re not convincing yourself something is an emergency if it really isn’t as you’ll wish you had more if an emergency does hit.

The Office for National Statistics shows that the average annual wage is £26,500, so after tax you’re looking at a monthly income of £1,775 - with this in mind, it’s time to get started.

How do I create my financial safety net?

Although making a start on your financial safety net might seem daunting, especially if money is already tight, just keep in mind that in the long run it’s for the best. Even setting aside a little bit at a time will still be handy in a shortfall, and if you find an account that pays interest, then every little will definitely help. Begin by trying to cut something out each month, such as alcohol, cigarettes, or take aways, and put the money that you would have spent into an account. Once you’ve started this, you’ll not only feel better in yourself, but you’ll also have started to build up that extra buffer.

Try to set up your finances in a way that makes it easy for you to portion your income against all of your outgoings and make sure you know your monthly budget inside and out. Have your payments coming from a central account that your wage gets paid into. From there you can set up Direct Debits for your bills and regular outgoings, and give yourself spending money, either by withdrawing cash to use throughout the month, or loading it onto a prepaid card such as Monzo. From this central account you’ll also need to set up the savings payment, so work out how much you have left each month, and set that aside so you don’t touch it.

What happens if I need emergency financial support?

Although you’ve got a plan to put together your financial safety net, what if something happens before you’re ready? If you can’t raise cash any other way, such as taking on extra shifts, selling unwanted items or asking your family for a loan, then you might need to look at taking out finance. The first rule to borrowing money is that you find a lender and loan that suits your circumstances, so research is key. Comparison website Choose Wisely can help you get an overview of your options, potential repayments and lenders that could help you if you have bad credit.

Remember if you do take out finance then you’ll need to be able to afford monthly repayments so that you don’t fall into further financial trouble - so make sure you put these into your monthly budget alongside your safety net funds and you’ll be all set for any future shortfalls.