Tuesday 21st May 2024

A credit card is not an emergency fund

If you had something unexpected to pay for, where are you planning to get that money from? 

One mistake people make when it comes to emergency funds is relying on credit cards. 

While credit cards may seem like an easy solution to cover unexpected expenses, relying on them can be a costly mistake. Credit cards sometimes come with high-interest rates and fees, which can add up quickly, making it challenging to pay off the balance. 

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Additionally, if you already have a high credit card balance or other debt, adding more debt can damage your credit score and create a cycle of debt.

In life, unexpected events and emergencies can occur at any time, such as job loss,, car breakdowns, or home repairs. These events can cause so much stress, which is why it’s essential to have an emergency fund.

What is an emergency fund? 

An emergency fund is a pool of money set aside to cover unforeseen expenses. It’s like a safety net to help you navigate tough times without needing to take out debt or experience financial hardship. 

Building an emergency fund is crucial for everyone, no matter what your age or income is, because emergency situations don’t discriminate!

Having an emergency fund available in cash (and not cash under your mattress, but money available in a savings account) can provide you with peace of mind, knowing that you have money readily available to cover unexpected expenses.

Building an emergency fund doesn’t have to be scary! 

The aim is to save at least three to six months’ worth of living expenses.

Work out how much it costs to be you every month (the cost for necessities such as rent, mortgage, essential bills etc.)  and multiply it by three for a three month emergency fund, or six month emergency fund. 

If that seems too overwhelming, start by setting aside maybe £25 or £50 each week or month from your paycheque. Consistency is key and prioritising your emergency fund like any other bill or expense can help you grow that pot of money!

Building an emergency fund is essential for anyone looking to secure their financial future. It provides peace of mind, protects against unexpected expenses, and offers financial flexibility.

It’s crucial to avoid relying on credit cards as an emergency fund, as it can lead to a cycle of debt and financial stress. Instead, aim to save and invest in cash reserves that will provide you with the security and financial freedom you need to achieve your goals.

Photo Credits: Unsplash

Laura Moore

Mouthy Blogger

Laura Ann Moore is a certified financial coach, financial wellbeing speaker,and host of the Mind Money Soul podcast, talking about finances in a fun, judgement-free way to help people feel good about money, get financially confident, and build wealth.

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