How much should you keep in an emergency fund?

Life is unpredictable. An emergency fund is a pot of money you put aside to pay for the unexpected. You can’t plan for everything, but having a reserve can give you a financial safety net when something goes wrong - whether that’s a redundancy, a broken boiler or a vet’s bill.

It’s a pot of money that’s specifically ring-fenced to deal with short-term shocks - not for everyday spending like holidays or lifestyle upgrades. It can help you avoid dipping into your long-term investments or taking on any unnecessary debt.

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The standard rule - 3 to 6 months of essential expenses

A common rule of thumb is to hold between 3 and 6-months’ worth of essential living expenses in an easy-access savings account. This type of account lets you withdraw money quickly without penalties.

To work out your essential expenses, focus on what you need to live on. This often includes:

• Rent or mortgage
• Utility bills
• Groceries
• Insurance
• Transport

Your essential expenses are not the same as your salary. You’re calculating what you must spend, not what you earn. For example, if your essential monthly expenses are £2,000, you should aim for £6,000 (for 3 months) and £12,000 (for 6 months).

Some people may want to hold more - particularly if your income is irregular, you’re self-employed, or you have dependants.

How can I start building an emergency fund?

Getting started doesn’t need to be complicated. The key is to take small, consistent steps that fit your situation:

• Clear any debts - start by looking at any high-interest debt, such as credit cards. Paying this down can often be much more cost-effective in the short-term and avoids any nasty interest catching you out.
• Open a separate account - keep your emergency fund separate from your everyday spending. Having an independent account helps you stay consistent and reduces the temptation to dip into your money for non-urgent purchases.
• Start saving regularly - once you’re comfortable with your position, begin setting money aside regularly. Even small, consistent amounts can build up over time. The easiest way to do this is by setting up a standing order into an easy access account.

Budgeting rules that can help

If you’re not sure how much you can save, this simple budgeting framework might help. It’s not a hard and fast rule, just a guide, so flex it to make it work for you.

The 50/30/20 rule

• 50% of your income goes towards essentials
• 30% towards nice-to-haves
• 20% towards your pension, shorter-term savings and debt repayment

Dipped into your emergency fund? Try to top it back up.

An emergency fund isn’t about expecting the worst. It’s about being ready for it - without it derailing your financial future.

But if you do use it, try to rebuild it when you can. Topping it back up can help you stay prepared for the next unexpected expense.

It’s also worth reviewing your fund once a year. This helps make sure it still reflects your essential expenses and current circumstances.

Read: Tools that can make you a better investor
Read: How to build a portfolio - with examples
Read: Investing versus saving: the basics

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Please be aware that past performance is not a reliable guide indicator of future returns. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.