How to save for an emergency fund on a budget

Save up for an emergency Fund - Insta

How anyone can afford to save for an ’emergency fund’ living in the city on a modest budget is beyond me.

Don’t get me wrong, when you are living from paycheck to paycheck, every month has its emergencies. A bill your housemate has been sitting on for months. A birthday you hadn’t quite budgeted for.

However in a world where restructuring and redundancies are all too common, saving for a real-life ’emergency fund’ is something which we all need to think about, even on a budget.

What exactly is an emergency fund? 

An emergency fund is an account used to set aside funds needed in the event of a personal financial dilemma, such as the loss of a job, a debilitating illness or a major expense, according to Investopedia. The general expectation is to have at least 3 months essential expenses squirrelled away in a current account for an emergency. Who can save this though when living in the city? Especially when your salary only just gets you through to next payday.

The 50-30-20 rule of thumb for budgeting

Harvard bankruptcy expert Elizabeth Warren and her daughter Amelia Warren Tyani coined this phrase, in the book they co-authored ‘All Your Worth: The Ultimate Lifetime Money Plan’.

Poverty taught me,” she says, candidly. “It was the school of hard knocks

Elizabeth Warren, who is one of the top experts on bankruptcy, is quite impressive. An American academic and politician, she told Elle Magazine, “When any hard hit comes—whether it’s divorce, a medical problem, someone in your family has an emergency—having savings means there are options. Having debt means you’re already flat against the wall, and now it’s just going to get harder.”

So let’s have a look at this 50-30-20 rule…

Use your salary take-home pay as a starting point. Grab your phone/calculator and then divide it into the three sections below. This way you get to see how much you have to save each month.


So let’s have a look at this 50-30-20 rule…

Use your salary take-home pay as a starting point. Grab your phone/calculator and then divide it into the three sections below. This way you get to see how much you have to save each month.

50% is how much you need to live on.  Think rent, bills, travel to work, food.

30% is how much you can spend on your wants. So anything, not an essential need.

20% is how much to spend on savings and debt repayments. Minimum payments are considered needs, so this 20% is to set aside to overpay your debts and to save.

It’s stuff like this which put me off ever saving. Do they know that rent and household bills in London counts for approximately 1/3 of my salary? My minimum payments alone account for nearly 20%.

So, I know just how difficult it is to save. I feel like I have tried everything. Spent hours putting my annual budgets into spreadsheets. Opening a savings account, only to take out whatever I had saved at the end of the month to cover next month’s emergencies. Or taking cash out each week. Only to spend that on top of putting all of my weekly expenditure on my cards.

Changing your mindset

Savings and pensions were always those grown-up money things I delayed getting around to for as long as possible. When work said they would match my pension contributions, I set one up with the lowest amount possible so not to be seen as completely irresponsible. I resented that money going out of my account too. As for savings. I had enough, so I thought. Not enough I found out to cover a real life emergency.

I always thought it an old-fashioned notion that you needed to save for retirement. I had it all figured out that I would be a high-earner, with lots of money in the bank, a nice house, with nice things, by the time I retired. So compromising on saving for my future to invest in the here and now seemed to me like, err commonsense.


Beware of little expenses

A small leak will sink a big ship

Never in my wildest dreams did I entertain the idea that I could save for an ’emergency fund’. Everyone told me to pay off my debts first and then save later. Great advice. Just not for when an emergency happened!

When you are working hard in the city and every day brings its stresses, a cheeky drink helps to relax and it’s a way of catching up with friends and colleagues. Invest in a spending app and you will see how much these tipples cost ya at the end of the month.

Top Tips Header

Top Tips:

  • Cancel all direct debits and standing orders, expect for anything considered a ‘need’ so keep rent, household bills, essential food items. Make sure all essentials go out as soon as your salary hits your account
  • Adopt the 50-30-20 budgeting rule. Forecast your budget now for next month. Put the 20% savings on an immediate bank transfer so on payday you don’t even see this touch your bank account
  • Pay your debts off first but save. The last thing you want to do is save, when you have credit cards need paying and mounting debts. What I am going to say is controversial, but work out how much you can save too. Set up an account you can’t easily access and siphon this off each month so you start building up your emergency fund
  • Use a spending app! Download this now to keep track of where your money is going if you haven’t already. I can’t stress how much this helps work out where your money goes each month
  • Be mindful of those little expenses. The coffee on the way to work. The bottle of wine on the way home. Sometimes we do need these things, but sometimes we can do without!
  • Put any important dates for March in your calendar so you know what I need to account for (birthdays, social gatherings)

Good luck!  

Let us know if you have any budgeting top tips in the comments below.

“Do not save what is left after spending, but spend what is left after saving”  Warren Buffet