Ok, so the title sounds scary but the truth is, with job losses, increased costs, energy prices changing all over the place, Swine Flu panic and strikes, we’re all at a loss as to what the next 6-12 months will bring.
I know of people whose mortgages have reduced by about half, and instead of saving the cash, they are preferring to go on expensive holidays. Normally I would be tempted by the same thing in their situation, but in the current climate? No chance.
If you do not have an emergency fund to be your safeguard in this recession, please start one. It is better to have something as a buffer than nothing. It means if you are ill, or your partner is ill, or your washing machine dies, or your car just suddenly stops, you have a stash to cover the problem. Even worse – what if you are ill for several months, or you lose your job?
I started saving £5 a month many years ago when I earned £80 per week, my rent was £40 of that. It was back breaking work and very hard to put that £5 aside, but I did it. The years went by and I increased the amounts as I could, I couldn’t yet afford a pension yet so at least I thought I should increase the savings slowly.
That idea stayed with me and I kept it going. That £5 a month turned into a thousand after a few years which made me feel I could cope if I lost my job and needed to look for another one.
These days, the recommendation is that you have 3-6 months worth of salary just in case. It means if you lose your job, or want to change and walk away from the job, you feel safer.
Savings rates are not amazing right now, but the main reason to do this is for protection, not rates.
So no matter what the next 6-12 months bring for us all, please make sure that if you are paying any debt obligations, you also put a little aside for the emergency fund. You will feel better and able to look ahead and not worry as much about what will happen. We are all in the same boat, so worth having a lifejacket!