How much should you have in emergency savings? Here’s exactly how to work it out

How much should you have in emergency savings? Here’s exactly how to work it out The usual advice is ‘three to six months’ – but what does that really mean for your situation? - Bookmark - CommentsGo to comments Become an Independent member to bookmark this article Already a member? Log in With over £300bn sitting in UK bank accounts earning no interest at all, it’s a reminder that helping Brits build financial resilience still needs greater awareness and education. Savings accounts are now offering 5 per cent on cash, so there’s no real reason for vast sums to be sat earning nothing at all. That’s equivalent to missing out on £500 a year on a £10,000 savings pot – but it’s one thing to have that amount built up already, and quite another to think about getting there in the first place. In UK Savings Week, Brits shouldn’t be just looking to review their finances, but look to put the next building blocks in place so they can better deal with rising prices, unexpected costs and shock bills. An emergency savings fund should be the first thing to aim for, but how do you get started and how do you know how much to save? What should a first savings goal be? If you’re starting from zero or close to it, the amount doesn’t really matter – the important factors are to get started, and then to keep going. First, you need to open a savings account. Choose a type which suits you and allows you access to funds when you need them, and ideally set up an automation with your bank or app so that money is sent straight there after it lands on payday. Time and consistency will work wonders when it comes to money, but having a real goal in place – and watching your account get closer to it – is a powerful motivator all the same. Then, tools and tips aplenty can be found online to aid your mindset and progress. For example, you could aim for your first £200 or first £1000, depending on how much you’re able to put away each month. Don’t feel pressured into going bigger; that can feel unattainable and make people lose interest or feel they’ll never have enough. It’s far more helpful to tick off smaller targets as you reach them and move onto the next. Get a free fractional share worth up to £100. Capital at risk. Terms and conditions apply. ADVERTISEMENT Get a free fractional share worth up to £100. Capital at risk. Terms and conditions apply. ADVERTISEMENT How much do you need in your emergency savings? That’s really all anyone needs to get started – but how much you eventually should aim to save over the long term is different for everybody. Most people have heard the notion of having three to six months’ worth of savings, but the detail within that is important. Derence Lee, chief finance officer at Shepherds Friendly, agrees that an emergency fund should “cover around three to six months of essential expenses,” but says to really figure out what that total means, you need to do a bit of detective work first: working out your actual, real-life income and expenditure. “Understanding where your money goes each month is the first step to taking control of it,” adds Lee, so don’t forget to review this when there are changes to rent, mortgage, bills, or family size. So first work out all your incomings - salary, side hustles, benefits, government payments or other income like carer’s allowance, from rental or dividends. That’s your starting point from where your savings goals can be worked out. Calculating your expenses Then, it’s not just a case of adding up those totals and multiplying it by three or six – that’s your income or earnings, not your expenses. Catherine Wray, head of savings at Leeds Building Society, explains that you should have a much tighter grasp of where that money goes – and that will then allow you to work out what your real target is. “A common rule of thumb is to aim for three to six months' worth of essential expenses in an emergency savings fund because it helps provide a buffer against unexpected costs or a sudden loss of income,” she says. “When calculating this figure, focus on necessities such as mortgage or rent payments, utility bills, food, and transport costs, rather than discretionary spending like holidays, eating out or subscriptions.” So, let’s take a basic example. If your total income after tax is the UK average of around £2,200 each month, then rent or mortgage is £800, utility bills, food, council tax and transport works out at another £900, that might leave you £500 for savings and discretionary spending. But in working out your emergency fund goal, those wouldn’t be included – if you lose your income, for example, you wouldn’t still be adding money to your savings, you’d be dipping into them. That’s what you are building them for. So it’s the housing-plus-vital-expenses monthly total of £1,700 that you might use for the basis of your savings goal. Don’t worry if your numbers are wildly different to these – these are just a rough average to show how it works. As for “three to six months”, that is the individual part of the calculation. Someone who lives with family, has no dependents, is fairly young and works in a strong, growing company or industry might have fewer worries and cost pressures, so might think three months’ costs is enough to have behind them - so £5,100 using the above example. If on the other hand you have the mortgage, two children, perhaps an elderly family member to support and have work which is more transient in nature, you might only feel comfortable with considerably more cash behind you. £10,000 would be just under six months of savings, in that case, from the above example of incomes and outgoings. Where should you save? There’s no single right answer for where emergency savings money should be kept, as long as two things are true: you can access it when it’s needed, and it is earning as high a rate of interest as possible – ideally above the rate of inflation so it doesn’t lose buying power over time. For 2026, that means you should aim for a minimum of 4 per cent, which is easily attainable at present. An easy access high yield savings account, a cash ISA or a regular saver which allows withdrawals are all examples of the type of account this cash could be stored in. “An easy access Cash ISA can be a useful home for emergency savings, helping to ensure your money is available when you need it while allowing any interest earned to be protected from tax,” added Ms Wray. When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results. Join our commenting forum Join thought-provoking conversations, follow other Independent readers and see their replies Comments