Ah, the emergency fund. Used since time immemorial to replace that dicky boiler, repair the leaky roof, or get the family car through its MOT.
You might be thinking that the emergency fund is the stuff of middle age, not an immediate millennial priority. After all, we have a whole raft of demands on our hard earned cash already. Kick it into the long grass, and get back to the business of living. Right?
As tempting as it might be to ignore the challenges, changes – and opportunities – that might come calling, it's a key part of financial wellness to be ready for what life brings along, and that includes having enough for Plan B as well.
Every millennial needs an emergency fund. Here are five good reasons why.
1. You have your ideal career opportunity – but you need a financial cushion
As millennials, we are rewriting the rulebook about what a working life looks like. Research shows that millennials will change jobs after a median of only two years with any one employer – adding up to dozens of career shifts over their lives. There’s no reason to feel trapped in a job that has run its course.
But what if that dream opportunity comes up, and the salary doesn’t match your current earnings? Or a period of setup or training is required first? If you’re starting out somewhere new, in a different professional field, or setting up your own business, this is a likely scenario.
Your heart says ‘move’, your head says ‘stay’ – and your emergency fund says, ‘actually, we can do this if we come up with a plan’.
2. Change at work leaves you out of pocket
Change at work is inevitable. Restructures, redundancies, changes to contracts or working hours are part and parcel of a modern career. And while employees in the UK are protected by some of the best employment legislation in the world, there are times when the outcome of change at work might hit you in the pocket.
Having an emergency fund gives you choices. Perhaps redundancy is inevitable, and the package doesn’t look too clever. With some savings set aside you can take time to find a new role, rather than feeling forced to leap into a quick decision. Or maybe the change brings with it an opportunity – cutting your working hours might mean you can return to study or set up that side hustle you’ve been dreaming of. With some money in the bank you can afford to think outside the box and find the right path for you.
3. Illness, injury or an accident changes life for you or a loved one
Nobody wants to devote too much time to thinking about ill health, accidents or any other potential unforeseen problem, either for ourselves or our loved ones. Having an emergency fund means that you can feel confident that you could deal with the multitude of ‘what ifs’, should they ever arise.
You might have health worries yourself, or perhaps a family member falls ill, and you need to spend time (and money) visiting and caring for them. Your emergency fund is a safety net that means that you don’t have to worry unnecessarily, or get distracted by speculative worst case scenarios. If something goes wrong, you can handle it.
4. Cash flow problems cause you a headache
Conventional wisdom suggests that your emergency fund is enough to cover your regular expenses for between three and six months. Ideally you will hold your emergency fund somewhere easily accessible, but away from your regular current account to avoid temptation. One big benefit of having this cash held somewhere accessible but distinct from your main bank account, is that it can tide you over if you ever get hit by a banking issue which blocks access to your usual funds.
What if you are a victim of identity theft, for example, and either your bank account is cleared out by fraudsters, or suspicious activity causes your bank to lock the account to give them time to figure out the issue? Would you be able to access the money you need to keep you going while you sort out the problem? That’s why you need that emergency fund.
5. You need – or want – to relocate quickly. Could you?
A final reality of millennial life is that we are more mobile than ever – both in our home country and globally. But moving house comes with a price tag. From one-off hits like rental deposits and fees, to possible changes in the cost of living in a new location, moving isn’t cheap.
Having some money set aside means that you can keep your location options open. Perhaps that will mean that you can seize that opportunity to go and work and live in another country for a while. Or perhaps it means that you can get out quick if a job, relationship or living arrangement turns sour. Either way, having some cash means you’re in control.
How to start your emergency fund
If you don’t think you can stretch to putting any cash aside, then start small.
Look for daily, weekly or monthly habits that can make it possible. Set aside any incremental pay rise you get before you ever get used to having the extra. Or review your budget and see which financial leaks you may be able to plug.
Our savings calculator will show you how your money could mount up over time, and provide you with a healthy emergency fund.
And if squirrelling away pennies for a rainy day feels just a little bit like tempting fate, then change your mindset. Think of your savings not as an emergency fund, but as an ‘opportunities fund’, set aside so you never need to worry about turning down a great opportunity for a lack of funds.
Put your chosen amount away, keep it topped up – and then forget it, and get back to the business of living, safe in the knowledge that you have the cash you need to be in control, and deal with whatever life throws at you.