Jobs bloodbath shows why it's more important than ever to build up an emergency fund - four steps to do it

Unemployment has risen to 5%, a level not seen in a decade outside of the pandemic, indicating a more challenging job market. This economic shift underscores the critical importance of building an emergency fund. Experts emphasize that such a fund is not a luxury but a necessity to cushion against unexpected job loss, reduced working hours, or increased expenses, preventing short-term financial setbacks from escalating into long-term debt. Building an emergency fund involves several key steps. First, individuals must determine the required amount, typically aiming for three to six months of essential living expenses for those employed and one to three years' worth for retirees. Essential expenses include mortgage or rent, utilities, and groceries, with average household monthly essentials estimated at £2,062, suggesting a savings target of £6,186 to £12,327. A crucial mindset shift is to recognize that even small, consistent savings, like £10 per week, are beneficial and accumulate over time, especially when placed in accounts with decent interest rates. The second step involves identifying sources for these savings by scrutinizing bank statements for unnecessary subscriptions or forgotten payments that can be canceled and redirected to the emergency fund. The third step is to initiate saving on payday, automating transfers to a savings account via direct debit. This ensures money is set aside before it can be spent, making saving effortless, with apps also available for weekly automatic savings. Finally, selecting the right place for the emergency fund is essential. An easy-access savings account with no withdrawal r... download the app to read more