Wild Wednesday may be over, but the Atlantic storm that battered the UK yesterday has underlined the frailty of our personal finances. With hundreds of thousands of people now facing the consequences of 100mph winds and extensive flood damage, it becomes startlingly apparent that most of us have no Plan B to cope with major or even minor incidents; according to a 2013 Scottish Widows survey eight million people in the UK have zero savings to their name.
At Savoo, we believe that everyone should have an emergency financial plan to deal with unexpected events like Wild Wednesday (or even small problems like the car breaking down!) Here we show you how.
Saving for your Rainy Day Fund
A rainy day fund (aptly named!) is an easily accessible pot of money that you can dip into at times of need- such as flood damage, problems with your car or an unexpectedly large bill. It is generally recommended that you put three months’ salary into your rainy day fund, so if you earn £1,000 a month you should aim to save £3,000 in total.
If this seems unachievable, decide on a small sacrifice you can make in your daily routine. Simply giving up your morning Starbucks latte and saving £2.75 a day will add up to over £1,000 in a year. Set up a standing order to leave your account rather than leaving it to memory- otherwise you might succumb to temptation.
Tip: Try the “Save what you spend challenge”. Every time you want to make an unnecessary purchase, ask yourself if you are also in a position to put the same amount into your savings account. If you can- great! If not, perhaps you need to reconsider your purchase…
Open a Cash ISA
Your rainy day fund should be instantly accessible rather than squirrelled away somewhere hard to reach, for instance in a Cash ISA. A Cash ISA (Individual Savings Account) is just like a normal savings account, except the interest isn’t taxed.
Tip: Pay off your debts before you start to save, because the interest rate charged on most credit cards and loans is a lot higher than one you will get on your savings.
Sometimes unexpected emergencies like Wild Wednesday will take you by surprise, leaving you in desperate need of cash without the necessary savings. You have two options: taking out a payday loan or putting the cost on your credit card. We wouldn’t advise taking out a payday loan under normal circumstances, but if you need a quick fix in a time of emergency (a hole in the roof or a leak in your car for instance) they can be useful- as long as you know when you have to pay the money so you don’t pay over the odds.
If you would rather put the money on your credit card and clear the amount in full the following month, your borrowing will be completely interest free. And don’t forget, by using a credit card you are protected by Section 75 of the Consumer Credit Act when you make purchases of over £100.
Review your home insurance
Do you know exactly what your home insurance policy covers? If your answer is no then you need to look at your documents pronto! Even people lucky enough to escape the floods on Wild Wednesday should still evaluate their policy, since they vary hugely when it comes to costs and exclusions. Don’t be left out of pocket in the case of future disasters- shop around to get the best deal.
If your home has been left bruised and battered by the storm this BBC article will walk you through the steps of making a successful insurance claim. And don’t forget to visit the Association of British Insurers website to find out more about your rights.
With the widespread flooding fuelling the debate on climate change, we can only presume that there may be more wet weather to come over the next few years. Don’t leave your personal finances to chance- put your Plan B in place and prepare for every eventuality.