I'm a savings expert and here's how big your rainy day fund really needs to be
A RAINY day fund can help you budget for unexpected expenses such as if you lose your job or the roof collapses.
Savings expert Anna Bowes reveals how much you should be putting aside and where to leave it.
There are plenty of reasons to save money.
You can put funds aside if you want to save up for a holiday or new car as well as to pay for a wedding or mortgage deposit.
There are also longer-term reasons to save such as putting money into your pension so you have a retirement pot for your golden years.
But savings experts say you also need to prepare for the unexpected when it comes to your finances with a rainy day fund.
This can help cover emergencies or unexpected costs such as if you lose your job so you can still pay the bills while you search for a new one.
It could also help fix your car if you are in an accident and can't wait for an insurance payout or if your vehicle's MOT is more expensive than usual.
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You need to make sure you have enough in your emergency pot to cover expenses.
Otherwise you could end up eating into your budget and expenses for everyday bills and spending.
It is also important to clear any debts first before you start putting loads of savings aside otherwise interest charges will rack up if you fall behind.
Prioritising paying off major debts first could also leave more money aside in the future for saving.
How much should you put in your rainy day fund?
Bowes, co-founder of comparison website Savings Champion, suggests keeping the equivalent of three months take home pay in your rainy day fund.
So if your salary is £2,000 after tax each month, Bowes suggests having a rainy day fund of £6,000.
Bowes says: "The general consensus is that you should keep the equivalent of at least three months of your take home salary in case of emergencies that can’t be planned for.
"For example, what if you were to suddenly lose your income, or you need to fix the car?
"Of course, you generally can’t do this overnight which is why it is good to get into the savings habit as soon as possible."
Where to put your rainy day money
Bowes adds that it is important to keep this separate from your regular account so you aren't tempted to spend it and suggests putting your rainy day fund money in an easy access account.
She suggests working out how much you can afford to save each week or month and setting up a standing order to automatically move your money to another account.
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Make sure you also take account of how much you need to payoff bills such as your credit card and other major debts so you have enough to cover that first and don't fall further into the red.
Bowes explains: "It is very easy to spend all your income each month if you don’t do this.
"If you set up a standing order to move this cash from your current account into a savings account each time you are paid, it can become like just another bill that you have to budget for, but one that you will benefit from in the future.
"If you don’t need to spend it on an emergency, you can simply treat yourself."
Leaving your money in an easy access account means it is still kept separate, can earn some interest and the money can be withdrawn quickly if needed.
You can use comparison websites such as Savings Champion, Moneyfacts and Compare The Market to find top savings rates.
Savers can currently get an interest rate of 0.67% with Shawbrook Bank's easy access account but you need £1,000 to open it.
Alternatively, you can open an Atom Bank easy access account for just £1 an earn 0.65%.
Regular savings accounts can pay higher interest and allow withdrawals but there are usually restrictions on how much you can put in each month.
Saffron Building Society currently has a regular saver rate of 1.75% but the maximum monthly contribution is £50.
Alternatively, you can put up to £500 per month into a Coventry Building Society regular saver and earn 1.05%.
Bowes says: "When you are starting out, the act of savings the cash is the most important factor as the interest earned will be small, but as your savings grow making sure you find the best accounts for your needs, paying the highest interest, as this will add a very welcome cherry on the top."
We've looked at how investing £78 a month could make you a millionaire by the time you retire.
See how you could could save £4,500 this month.
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