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Midlife MOT: wealth, work and wellbeing
Midlife MOT: wealth, work and wellbeing

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4 A savings buffer for life’s uncertainties

Money put aside will help you deal with life’s financial shocks.

To provide this you should have some savings in an account where you have instant (or ‘easy’) access to the money when you need it. Avoid fixed-rate accounts as you may incur a charge if you withdraw funds to pay unexpected bills.

Whilst it may be difficult to build up this rainy-day fund with day-to-day financial pressures you should ideally aim to have tucked away the equivalent of at least three months of household spending. But if you have dependents and/or your work is less secure you may want more. Having this available means that there is no need to panic if events result in unexpected bills or if you are temporarily unemployed.

The image is a drawing of two people sitting on a large jar filled with coins. One person holds some coins and has a thought bubble with ‘£’ in it. The other person has a thought bubble with ‘?’ in it.

So check your position. How much cash do you have in a rainy-day fund? Is this above or below the three months’ target?

And get into the habit of putting money into your savings account as soon as you receive your monthly pay – even if it’s just £10 or £20 a month. Try to avoid waiting until the end of the month as you risk finding that you have spent the money instead.

What should you do if you haven’t got a savings buffer and have no current scope to save? Perhaps your income is fully taken up covering living costs?

Some people in this situation can make small savings through minor changes – which can add up over time. You might want to look at sites like MoneySavingExpert [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] for some tips and tricks. For example, some people use mobile apps to round up debit card and digital purchases to the nearest pound, moving the extra pence to a savings account.

Additionally you could look at how you could trim your spending to provide more scope to save more – both for your rainy-day fund and perhaps for your pension too. We’ll look at this next.