Although you might try to make provision for the future, the unfortunate truth is that things don’t always go according to plan, especially when it comes to your finances. It only needs an emergency such as a broken water boiler or your car unexpectedly breaking down, and all your money management skills are thrown into disarray. For this reason, financial experts all recommend that you should have some money put by in an emergency fund. This should be worth about 6 months’ worth of your average expenses.
When you begin to put money by, you should be realistic and realise that you won’t be able to save all this money at once, and it has to be done gradually. You should start by drawing up a budget (if you don’t already have one), and then examining how you can cut down on your expenses. You’ll then know how much you can afford to save. This sum of money should be treated as a priority debt and should be transferred to your savings account as soon as you’re paid. If you leave it till the end of the month, you might find you end up spending it on other things.
If you get some unexpected money such as a bonus, overtime or commission at work or even money for your birthday, this should be added automatically to your emergency fund to ensure you reach your target figure much faster.
The question that some people have is what they should do if they are in desperate need of cash before they’ve reached their target figure and the amount in the account isn’t sufficient. Most people would then use their mainstream lender to borrow the money, perhaps by putting the amount on their credit card. The main problem with revolving credit facilities like credit cards is that it can be quite difficult to have the discipline to bring this outstanding debt down. As a result, some people then find themselves in financial difficulties and of course, their outstanding balance continues to incur high interest charges.
Another way people cope is to have an unarranged overdraft. However, research by the consumer watchdog ‘Which?’ in May 2018 found that 13 out of the 16 mainstream banks in the UK charged more interest overall than a payday loan. In fact, the costliest unauthorised overdraft was over 7 times the cost of an equivalent payday loan. People often find repaying a payday loan much more convenient than paying off an overdraft since they have set repayment dates which makes it easier to budget. The temptation with an overdraft is to leave it to the following month, and then the costs spiral out of control. Despite the FCA’s plans to review the market, there’s still a lack of transparency and understanding about how banks charge their customers.
Short term loans from a reputable lender can be the solution when your emergency fund hasn’t been built up yet. Visit the website to find out more.