Emergency savings can be the financial buffer that stops short-term shocks from turning into long-term struggles.
However, according to the Financial Conduct Authority (FCA), one in ten people in the UK have no cash savings at all.
A further 21 per cent have less than £1,000 available for emergencies.
Low savings, high risk
The FCA’s latest Financial Lives survey reveals that one in four people in the UK are already on unstable financial ground.
Many are missing payments, finding it difficult to keep up with regular bills, or have no savings to fall back on if something unexpected happens.
A general rule of thumb for an emergency fund is to hold between three- and six months’ worth of essential expenses in an accessible savings account.
For some, even one month’s worth is a helpful starting point, but what matters is building a safety net you can rely on when life does not go as planned.
Financial support is available.
Over 60 per cent of those who used debt advice or management services last year found it helped.
Lenders offer support, such as payment plans and hardship options.
Access to basic banking is improving too, with digital exclusion falling from 6.9 million people in 2017 to 1.2 million today.
Making the most of surplus savings
Even those with more than £10,000 in investible assets may not be making their money work hard enough.
The FCA found that 61 per cent are holding most of these assets in cash.
While emergency funds should remain liquid, excess cash savings could potentially be better allocated to long-term investments or retirement planning.
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