Savers need up to £13k set aside for emergencies – tips shared on how to prepare for 2021

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Maintaining rainy day funds is a sensible decision few would argue with but an exact number for what should be set aside can be hard to pinpoint. This can be made even more difficult when factoring in plummeting interest rates, which means leaving too much cash in bank accounts could be harmful to long-term financial prosperity.

According to research from Quilter, which included data from a survey of 2,005 UK adults and analysis of figures from the ONS, 39 percent of people have revealed they’re more likely to hold cash because of the pandemic and a further 26 percent have realised they need an emergency fund.

These findings have been backed up by the actions of 25 percent of respondents who had been able to put away more in this period and 72 percent are planning to either put the money in a savings account or just let it sit in their bank account.

Generally, Quilter detailed the general rule for having emergency funds is that the amount saved should equate to between three and six months’ worth of living expenses.

However, this will obviously vary from person to person and as such, Quilter calculated an averaged amount from which everyone should be able to work.

According to the ONS, average weekly spending per household is £585.50, meaning people will need roughly between £7,000 to £13,000 set aside.

While it bodes well that many people are looking into prioritising their financial set up at the moment, additional research from Fidelity International shows the commitment could be short-lived.

In a survey of over 2,400 UK adults in employment, the company found financial needs have not been considered (or cannot be considered) beyond the end of this year.

The research showed 48 percent of respondents would have enough money to cover expenses for up to three months should they lose their main source of income.

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Around one in 10 (11 percent) revealed they would only have enough money to last a month.

Maike Currie, an Investment Director at Fidelity International, commented on the findings: “Looking back to the start of the year, no-one could have predicted the challenges we would have to face, with many of us experiencing disruption to our lives at home and work.

“On one level it’s little wonder that people are focused upon their short-term finances and obligations, particularly with further lockdown restrictions introduced earlier this month.

“However, many longer-term goals may have changed or been postponed as a result.

“One of the most important steps people can take right now is to make sure they understand their financial situation and identify the areas in which they can take control, whether in their spending, saving or management of investments.

“Taking these small steps today can help you to understand the choices available to you long term and provide some peace of mind during times of uncertainty.”

Fortunately, savings guidance has been issued by Raisin UK, which has detailed some of the best ways people can manage their assets.

Kevin Mountford, the co-Founder of Raisin UK, provided three key ideas for effectively managing one’s money and save smarter.

Microsaving

This involves saving smaller amounts for bigger long-term outcomes, as Kevin explained: “The first thing should be to figure out how you save best.

“Not everyone has the capability to deposit a chunk of their salary into a savings account every payday, which is where techniques such as micro-saving are great.

“There’s plenty of savings challenges available, such as the 365 day challenge of the 1p challenge. If you start each Sunday saving £0.01, incrementing every day until you get to Saturday where you save £7, then you can end up with £1,500 in 12 months!”

Following this, Kevin highlighted more manually intensive options.

Use a combination of savings platforms and moving your money about

As he concluded: “Having a savings account is great, especially what that lets you top-up and withdraw at your convenience, but it’s always worth looking at other options. Having an easy access account is great to get a tidy sum together, but dependent on what you’re saving for, it could work great with another savings account!

“If you decide to invest for something more long-term, a fixed rate bonds account may be the best option. If you top up your easy access and decide you want to lock that sum away for a specific reason, whether it’s a house deposit, a wedding or just so you don’t touch it – moving it to a fixed rate account where the rate won’t change is a sensible option.

“They also usually offer more competitive interest rates, which means ultimately more return on your money!”

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