Crisis-proofing your finances: How to prepare for the unexpected with an emergency fund

An unexpected bill, a sudden job loss, a broken-down car – life can be full of nasty surprises.

But as the cost of living crisis grinds on, a huge portion of Brits are living without any financial safety net at all.

Recent research from the Money and Pensions Service found that 25% of Brits – some 11.5 million people – have less than £100 in savings, with one in six having nothing at all.

If you’re counted in this tally, it’s not your fault: eye-watering energy bills, low wages and years of consecutive inflation have eroded our collective ability to save. But building an emergency fund is an important way to crisis-proof your finances.

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“An emergency fund is crucial for covering unexpected expenses, like an unexpected bill, car repairs or reduction of income due to job loss, for example,” says Jackie Spencer, head of money and pensions policy at the Money and Pensions Service.

“Having some savings in an instant access account means you’re less likely to have to turn to borrowing, should an emergency arise.”

With careful planning, you can build resilience and weather financial shocks. Here’s how to start an emergency fund, manage unexpected expenses and strengthen your financial security.

How to build an emergency fund

An emergency fund acts as a financial safety net, helping you manage unforeseen expenses without resorting to high-cost credit or debt.

There are two crucial steps, explains Halide Kalfaoglu, benefits expert at Turn2us: maximising your income and managing your budget.  

How to maximise your income

If you’re on a low income or unable to work, ensure you’re receiving all the financial support available to you.

“Benefits can help cover essential costs such as housing, council tax and childcare, depending on your circumstances,” Kalfaoglu says. This means there’s more left over for an emergency fund.

To quickly and easily check what benefits you might be eligible for, you can use the Turn2us Benefits Calculator; this tool by StepChange debt charity provides a similar service.

Depending on your circumstances, you might also be eligible for charitable grants. This Turn2us Grants Search is a useful resource.

“You may also be able to access help through your local council, such as local welfare assistance schemes, depending on your circumstances and where you live in the UK,” Kalfaoglu adds.

How to manage your budget

So you’ve made sure that you’re getting all the help you can – what next? It’s time to make a budget.

“Work out all of your monthly income and outgoings, and what you have left over afterwards accounting for everything,” says Simon Trevethick from StepChange.

“From there, you can work out what you can set aside to pay any ongoing debts or make any savings to build your financial resilience. StepChange has some easy to use budgeting templates on our website.”

To begin, list all your sources of income, including wages, benefits, and any other earnings. Next, detail your monthly expenses. It helps to categorise your expenses into essentials (rent/mortgage, utilities, food) and non-essentials (entertainment, dining out). This way, you can identify areas where you might cut back to free up funds for debt payments or savings.

Managing irregular income can be challenging – but budgeting is still helpful. Start by estimating your lowest monthly income and base your budget on this figure. Any additional earnings can be allocated toward your emergency fund, creating a buffer for more challenging times.

Prioritising debt repayment is crucial, experts have told the Big Issue. Consider the “avalanche” or “snowball” methods: the avalanche method focuses on clearing the highest-interest debt first, while the snowball method pays off smaller debts first for a sense of achievement. Whichever approach suits you best, consistency is key.

“There’s no silver bullet when it comes to debt and it can take time to get back on top of things,” Jonathan Corner, Co-Founder of financial wellbeing app Ilumoni, told Big Issue previously. “Be sure to celebrate the victories as that’s what will keep you motivated, so make a note of when you want to have paid off 10%, a quarter, half etc. and enjoy those moments with an inexpensive treat.”

The Big Issue has previously collated budgeting resources – and some of the best tools – here. Nifty money-saving tips include spring cleaning any subscriptions, or looking for free alternatives.

Setting realistic savings goals is key. “Start small,” Trevethick adds – and consider automating your savings goals.

“No matter how small a start is often half the battle,” he says. “With most banks now, you can automate your savings goals and set up pots which can be allocated for certain priorities.”

It may also be worth looking into the Help to Save scheme, a government backed savings account. It’s eligible to people claiming working tax credit or universal credit and allows you to boost your savings by 50p for every £1 saved.

How much should you save in your emergency fund?

Major banks recommend having three months’ worth of essential outgoings – rent, bills and groceries –to fall back on.

But there’s no one-size-fits-all approach, says Spencer from the Money and Pensions Service.

“There’s no set amount to save; the key is putting aside what you can without affecting day-to-day expenses,” she said.

“The best goal is whatever you can realistically save, rather than aiming for an unrealistic target. It’s about building a buffer for emergencies, not stressing over an ideal number.”

How to deal with unexpected expenses

It is difficult to save at the moment, says Trevethick: “The truth is, in the current climate it is very difficult to build such a fund as cost of living pressures persist, and wages have remained stagnant in real terms for a long time.”

If you don’t have an emergency fund, there are still ways to access emergency money and support. What help is available differs depending on the type of outgoing.

If you’re dealing with energy and water bills, contact your supplier to ask about available support and advice. If you’re struggling to afford food, you may be able to get help from a local food bank. If it’s a sudden funeral cost, you might be eligible for benefits such as Bereavement Support Payment, Funeral Expenses Payment or Funeral Support Payment (Scotland only).

If you’re on universal credit, you can apply for a budgeting advance to pay for essentials. This is an interest-free advance on your universal credit, but you do need to meet certain criteria. 

Whatever you do, urges Trevethick, do not turn to loan sharks or high-interest loans.

“If you’re facing an emergency expense and you don’t have any funds available, it’s important to avoid turning to payday loans or other forms of high-cost credit, as these can have incredibly high interest and charges which can quickly worsen debt problems,” he said.

“Alternatively, look into credit unions or government-run schemes. For example, your local council may have local welfare assistance schemes that can help in an emergency, and the extension of the Household Support Fund means that your council may be able to support you with essential payments.”

Charities like MoneyHelper, Turn2Us and StepChange can help you search for available funds.

Debt is stressful and isolating – but you don’t need to deal with it alone, says Spencer. “If debt from an unexpected expense becomes unmanageable, seek support early,” she said.

“The first step to seeking debt advice is always the hardest, but it can make a massive difference, and you don’t have to tackle debt alone.”

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