Morning. If you've been putting off starting an emergency fund because you weren't sure how big it needs to be, this one's for you.
The number everyone throws around is "three to six months of expenses." It's not wrong, exactly, but it's not that useful either — it's a rule of thumb from a personal finance textbook, not an instruction built for your situation. Here's a more actual way to think about it.
How big your emergency fund actually needs to be
Start with one month. Not because one month is "enough," but because most financial stress isn't caused by a total loss of income — it's caused by not having a few hundred pounds spare when the boiler breaks, the car needs a new clutch, or a bill lands earlier than expected. One month of essential costs sitting in an easy-access account removes that particular kind of stress almost immediately, and it's a realistic first target.
From there, the "right" size depends on how stable your income actually is, not a generic rule:
- Stable, salaried, single income into the household. Three months of essential expenses (not your whole spending — rent or mortgage, bills, food, minimum debt payments) is a sensible working target.
- Variable income — self-employed, commission-heavy, contract work. Six months, because the gap between "income stops" and "income starts again" is less predictable and often longer than you'd guess.
- Two incomes in the household, both fairly secure. You can reasonably sit nearer one to three months, because the odds of both incomes stopping at once are much lower.
And the bit that actually matters more than the exact number: an emergency fund and paying down debt aren't always sequential. If your employer matches pension contributions, that match is close to free money and usually worth taking even while you're still building your fund up. What you're avoiding isn't "having zero savings" — it's relying on a credit card at a high interest rate for something that was always going to happen sooner or later.
The myth we're putting right
"You need three to six months of expenses saved before you do anything else with your money." In that strict order, no. Building a full emergency fund before you make any other financial move — before you get a workplace pension match, before you clear an expensive overdraft, before you open an ISA — usually leaves you worse off, not more careful. A £1,000 starter buffer, an employer pension match, and clearing a 30%+ APR debt can all sensibly happen at the same time as you build towards the fuller three-to-six-month target. Treat it as one of several priorities running together, not a gate everything else has to wait behind.
This month's number
Once you've got savings sitting in an account earning interest, the next question is whether you'll pay tax on it. Most people won't: the Personal Savings Allowance lets you earn £1,000 of savings interest a year tax-free if you're a basic-rate taxpayer, £500 if you're a higher-rate taxpayer, and unfortunately £0 if you're an additional-rate taxpayer. With savings rates where they've been recently, it's more possible than it used to be to breach that allowance on a fairly ordinary savings balance — worth a quick check if you've got several thousand pounds sitting in cash.
Where to start on the site
If you're building an emergency fund from scratch, the Budgeting, actually explainer (with the free template) is the fastest way to see what your actual essential costs are each month — which is the number you need before you can pick a sensible target. If you want to check what an easy-access account is currently paying, our savings account comparison is worth a look before you leave money sitting somewhere doing nothing.
See you next month.
This newsletter provides general educational content, not personalised financial advice. Figures and thresholds mentioned may change; always check current rates before relying on them.