An emergency fund in Ireland is essential. It is something most of us know we should have but many of us don’t have one. Lets break it down into manageable pieces and finally understand all there is to know about an emergency fund.
What is an emergency fund?
An emergency fund is money specifically set aside for when something goes wrong in order to avoid going into debt to cover that emergency.
Wow! That was a mouthful. What does that mean?
In simpler language it is money you save for when the proverbial hits the fan so that you don’t need to go into debt.
The “so that” part of the last sentence is the key piece of that line. Technically if you have credit available to you and an emergency crops up you could use that line of credit. However that would only make a bad situation worse. Now you would have the initial emergency and more debt.
Instead an emergency fund means you have money saved up for say an unexpected doctors visit and can afford to pay it without worrying about where the money is coming from.
Are there any downsides to an emergency fund?
Having an emergency fund protects your money and gives you piece of mind. It does have a downside though. You have to be disciplined enough not to spend it willy-nilly.
Yup, that’s the only downside. Money you need to keep.
That sounds daft because it is such a simple idea. The reality is it can be difficult to leave a large sum of money in your account and not spend it.
How to save an emergency fund in Ireland
- Decide how much you need to save
- Decide where you will save the money
- Write a realistic budget and focus your goal on your emergency fund
- Cut back on unnecessary spending and save that money towards your emergency fund
- Increase your income and save the additional income towards your emergency fund
- Don’t spend that money except for when you really need it for an emergency
How much do you need?
This will be different for everyone and there is no one size fits all amount. What sort of emergency do you want to be able to cover? A few hundred euro will cover an appliance breaking down but it won’t cover job loss.
If you are getting started with an emergency fund it would be great to start with a few hundred euro and build on this as you go along. Getting an initial €500 together and working towards €1000 will give you some protection against a small emergency.
To define the amount you need for an emergency fund you should look at your essential bills and anything in your life you would need to survive.
- Housing costs including any insurance payments
- Any minimum debt payments such as car payments
- Health costs including prescriptions and any insurance costs
- Any contracted bill payments
3 or 6 month emergency fund?
After you save the starter emergency fund you can start looking at your job security. If you work for public service for example you might find you only need a 3 month emergency fund. If you work for the private sector or are self employed a 6 month emergency fund might better suit your needs.
Only you can decide what is best for your situation and what you feel most comfortable with.
Other factors that might influence the size of your emergency fund would be relationship stability, personal safety within your home, how happy you are in your work, extending your family etc.
What you don’t need to include in your emergency fund
Lets be real if the worst happened and you were made redundant in the morning you wouldn’t need everything that is currently in your budget. There are wants in there that could be done without while you got back on your feet.
Again this is something only you can decide upon. What I might consider essential you might consider a luxury and vice versa.
Where to save your emergency fund in Ireland
You need to be easily able to access your emergency fund without days or weeks of a wait time. Consider where you can save your money that is easily accessible but that you are unlikely to spend it without thinking it through.
Your day to day bank account is easily accessible but are you going to be tempted to dip into it when you see a clearance sale? Do you need your savings to be kept in a specific savings account so you almost forget it’s there?
Write a realistic budget
Write a budget that you can realistically stick to and make saving an emergency fund your goal. Any money above your essential bills and sinking funds could be allocated to saving an emergency fund.
Cut back on unnecessary spending
For a short length of time you could reduce the amount allocated in your budget to wants and redirect that money towards your emergency fund.
You don’t want to do this forever but a few weeks or months with less personal spending money is do-able.
Cutting back on take-aways, paid for activities and aiming for less waste in your life are all simple ways to save money.
Mrs Hawkins House blog has a great blog post titled – How to survive a no spend month. If you are looking to cut back and save for an emergency fund in Ireland or really anywhere in the world this is a wonderful read.
Increase your income
Overtime, a second job, paid online surveys, mystery shopping or starting your own small business are great ways to raise some extra income that you can earmark for your emergency fund.
If those options aren’t available to you maybe consider selling any unwanted items or clothing you no longer need for extra cash.
Keep your emergency fund for an emergency
This is hard to define because it will vary from one person to the next.
A medical emergency is a clear cut emergency but what about if your television breaks?
On first glance you might say a television is a luxury that you can manage without. That’s fair. Someone who is taking care of a loved one with special needs or bed bound might say a television is an essential tool in their home.
Only you can define what an emergency is.
That said Christmas is not an emergency. That is an annual expense that you can budget for or set up a sinking fund for.
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