Tips for building an emergency fund

[SnowShod]

Looking for tips to help build up an emergency fund. I'm a higer earner earning 6 figues, but I struggle with budgeting/saving for the medium term.

I put most of my spare money in a pension, and live quite frugally day-to-day. - for example I have a cheap food shop, no subscriptions, no beauty treatments, rarely buy clothes. But my one vice is going on holiday.

I'm wondering what I can do to help me build up an emergency fund. For example, what % of my salary should I look to put away every month? Should I open a separate account for this? How can I stop myself dipping into this account when I want things?

My main issue is a mental one and making large purchases, rather than an issue of cash flow. I can be a bit weak, for example I budget X amount for something, but end up spending more as I want to spoil myself or others and I have the money available. However, this is detrimental to my medium-term savings goals. I've seen apps recommend like YNAB but it feels like a lot of effort (maybe it's worth it?) - it also feels scary to be that rigid (but maybe that's what I need). Any other tips or quick fixes?

Longer info for more context: In the past 6/7 years my salary massively increased after completing a course and changing career. This enabled me to pay off some debt and save for a house deposit - finally buying my first property 3 years ago. In the past, my emergency fund was the money I put away to save for a house deposit (I actually lost my job, used some of the deposit savings to tide me over, then rebuilt the deposit once employed again). After I bought my house, I massively upped my pension contributions.

In terms of savings, I reliably put away £600 per month from my wages - but I use this to go on holiday with friends or my boyfriend. So I never build a huge pot. I also get quarterly bonuses, which I put into an ISA. However, I am struggling to retain large amounts of bonus money over time as I pay for various experiences and larger purchases. For example, I bought a newer car (costing approx £12000) 2 years ago as mine was 20 years old and on it's way out. Last year I surprised my boyfriend with a long weekend away. This year I'm taking my mum on a luxury holiday (approx £10,000 for both of us) to celebrate big birthdays - she hasn't been abroad for over 20 years.

Obviously, the easy answer is stop buying things and going on holiday. However, I guess I'm looking for balance - I don't want to be in a position where I do nothing because I'm always saving, but I also don't want to be in a position where I lose my job and have no money to fall back on. Is there a strategy for budgeting where I can feel like I'm enjoying things now, but also ensuring I'm secure for the future? I feel like my pension is sorted.

There is truth in this. I have made a will, but I had a poor upbringing, was earning less than £30k until 2018 - and always struggled with money.

I need to educate myself financially, and start getting "scared" as you say.

I've thought about the minimum wage, company folding etc scenario, which is my main motivation for making this thread.

I'm appreciating all the advice and questions. It's really helping me think things through.

I think this is a good idea. I said to myself: If I invest the bonus instead of overpaying the mortgage it will gain interest and I can pay off more later. Obviously this hasn't happened because I've been spending most of it 🤦‍♀️

I have 22 years left on my mortgage because I've only just been able to get on the property ladder.

If I really can't save my bonud then perhaps I need to put it directly into the mortgage. This feels a bit like defeat: why can't I put my bonus in an account, let it gain interest and then either use it if a true emergency comes, or pay off a lump sum at the end of my fix? Obviously I'm crap at money, that's why 😪

You really aren’t crap, honestly the best thing you can do is pay into your pension. You can use that lump sum to pay off your mortgage. However you could pay a bit less into your pension and enjoy your money more and save. Sometimes it’s better to not necessarily get the best deal/interest etc and have peace of mind. You need to way up what’s important to you.
One idea is £500 per month into
a S&S ISA and DO NOT touch it. Or do what I do and spend the profit I make on fun stuff and don’t touch the original amount.

The amount you're putting into your pension is extraordinary OP. I'm not surprised you feel like you can't save loads after that.

I earn less than you but have a higher take home pay, by around 50%.

Anyway the way I run my savings/finances is as follows:

1. Current account
2. Short term savings account (pays for anything that needs paying annually - Christmas, car repairs, car insurance, other insurances, I pay my gym membership annually). This gets about £200 a month into it. I'd try and take funds out of this for things like a new fridge if it had enough sloshing round.
3. Medium term savings account - this probably counts as my "emergency fund" but ultimately all my savings would be an emergency fund if i need it. This is to pay for new car if required, or things like roof repairs. This gets £400 a month into it. Once it gets to a fair amount I'll probably stop paying in but I rinsed it almost clean last year to pay off the mortgage and to then pay for some unexpected roof repairs, so at the moment it's looking a little low.
4. Uncommitted holiday funds - this gets £200 per month. This is a guide rather than a limit, mainly to actually deguilt me from spending money on holidays.
5. Committed holiday funds - this doesn't get anything added to it but I transfer the full funds for the holiday at the point I commit them so I don't accidentally spend holiday money twice.

I have various longer term pots as well that I move things round into as and when appropriate - e.g. I usually have another £400 regular saver and that goes into a longer term pot at the end of each year. The balance in my current account goes up every month as well so I bring that back down to a reasonable level every 6 or 12 months.

And then I also have a "treat yourself" fund. That doesn't get anything specific added to it monthly, but I add anything I win on the premium bonds to it, and birthday money etc. Doesn't usually have more than a few hundred pounds but it allows me to splurge on things I wouldn't otherwise deem worthwhile.

I'm not sure if that helps, because you might struggle to save for all those areas monthly - but it might help you think about what you want to do quarterly.

Use an account that has budgeting pots as a feature. It was a game changer for me

Monzo - this is the bank I use, but there are other options

you will never be able to do everything 100% perfectly with money unless you have a crystal ball. aim for 80% success and you will be fine. 12k is a good starting figure on your salary, it sounds like you are doing well to me. your pension will be large but you must make sure you have enough for savings and the things you need, too. big long-term purchases e.g. furniture will be a lot cheaper now than they will be in 10 years due to inflation.

Income protection, pension and savings must be your first priority.

The advantage of pension is not only the tax relief added as a higher salary earner but also that you can't touch it till 55 min / shouldn't touch it for much longer say 65. The downside re ISAs is you may/ probably will be taxed on the pension when you start taking it over the tax free minimum annual income of £12,570.,

If you are likely to dip into shorter term savings you need to save somewhere where you have it locked away say in a bond for 1-3 years, which will get you out of the risky habit of dipping in when you have an impulse to treat yourself.

Plus make a direct debit /standing order today into a deposit account with a max 1-3 withdrawals pa.

These strategies may help you as you will be loth to loose interest/ incur a penalty.

An IFA should be able to help you choose Stocks and Shares ISAs to save into monthly. This has the advantage of giving you a tax free income in retirement/ your hour of need. It's true it will have up front /annual charges and be accessible in an emergency but as you'll have to make an effort to complete forms etc it may be enough to stop you accessing it if you are an impulse spender.

Good luck. Congrats on having a will. ( Do you have the 2 power of attorneys sorted if you are ill / incapacitated etc so someone can sort things for you? )

There is a flow chart you can easily Google, that gives an idea of how much money to have in an emergency fund and then what to do with the next lot of savings.
It also helps to plan retirement dates and other life plans

I find saving smaller amounts weekly helps as I don't notice it so much, so £50 a week goes to my premium bonds, £50 a week to an isa, £75 to a different account for incidentals, £25 to another savings account. So suddenly I've put aside £800 without really noticing.

I love my holidays too, but I'm also saving for a house deposit, so hard...I do have probably 6 months of outgoings saved which I never touch, but I do try and think that life is for living and you do need to have fun, within reason!

For an emergency fund aim for 6 months of living expenses. Whilst you're building up the "pot" think about how you would access this sort of money if your jncome stopped immediately.
Overpay your mortgage. Ours let's us overpay 20% a year without a fee. We never manage that (!) but it's good to eat into it because you can then increase the tenor /decrease the monthly payments if needed.

I recently got promoted & a pay rise but not unfortunately in your league OP

Anyway, I have always kept a spreadsheets of everything I spend & save, from when the DCs were young and we were basic, it's muscle memory and continue it now.

So I have an instant access savings account linked to my current account which I have 'saving pots' so one account but divided into, house, holiday, Christmas, car etc and keep a tally of this on a spreadsheet although you could use notes on your phone

I have monthly standing orders for each of these pots as soon as I get paid and update my spreadsheet.

I also have premium bonds and a S&S ISA for any bonuses I get or if my pots build up.

Currently pay 15% into my pension but once my tax code settles down I aim to up this.

ukpersonal.finance/flowchart/

You are putting a lot into pension for your age; probably saving a lot of taxes too; no wonder you have to use your extra payments for holidays as your monthly income after taxes and pension is not a lot.

I don’t think you are doing too bad as saving a lot more n pension; but I would not put all the eggs in one basket; are you planning to retire early? Is that why you are putting so much? 30 to 45k could be more reasonable.

Look at the plum app, it takes a small payment each week based on your financial situation. I got a decent savings pot quite quickly.

I wouldn’t stop going in holiday; you are building memories life and money is to be enjoyed and you are saving a lot on other things like food pensions and clothes.

I think it would be very sad earning all that money and don’t enjoy the present moment and treat the people you love. Just cut down a bit on pension to build the emergency fund.