How to Grow a Contingency Fund

In life, it is always best to expect the unexpected, even though it is sometimes an uncomfortable thing to have to do. One of the best ways to prepare for the unexpected is by putting aside money in a contingency fund to make sure you are covered financially should something unpredictable happen, such as losing your job or a large expense you didn’t plan for.

So, how much should you set aside? Some banks such as HSBC have an emergency budget calculator to help work out how much you may want to save for your emergency fund. You can input your essential spending for the month and the calculator will work out how much you need to save and how long it would take you to reach this goal.

Here are a few basic steps you can take to start building your own contingency fund:

Decide how much you need

Most Financial Advisers suggest placing at least three months’ worth of living expenses into an emergency fund. For example, if your total monthly outgoings – including rent or mortgage payments – are £2,000, it’s good to have £6,000 minimum set aside.

Of course, the more money in the fund, the better – the equivalent of six months’ worth of monthly outgoings is ideal. This fund will not grow overnight, it will take time to save and even a small emergency fund is better than nothing, so don’t be discouraged.

Start saving

After you have worked out a target for your contingency fund, you can calculate how long it will take to get there. Set a date for your goal, with milestones along the way to help you celebrate your progress.

You may wish to create a separate savings account for your contingency fund so you’re not tempted to dip into it. Plus, you may be able to earn some interest to add to your savings. However, you will most likely want to be able to access the money quickly, if you need it – so it would be advisable not to opt for a locked savings account or investments.

Another good way to encourage savings is to set up a standing order so the money goes straight into the separate account, so you’re not tempted to spend it once you get paid.

Make a clear plan

A contingency fund is all about planning, so you may need to ask yourself some questions, such as what constitutes an emergency? Examples could be:


  • job loss
  • medical bills
  • car or home repairs

Defining these early on may help you not to spend the money elsewhere.

Keep it topped up

A contingency fund is there to be used, but if you do have to withdraw some of it, it’s a good idea to make sure you top it back up as you don’t want it to simply shrink to nothing over time. It’s also worth assessing your emergency fund on a regular basis. Your expenses can change, so what was three months’ worth of expenses a year ago may no longer be enough.

If you would like to talk to a member of the team here at  gpfm, please don’t hesitate to get in touch over email at or call 01992500261. 

This article is for information only and must not be considered as financial advice. We always recommend that you seek independent financial advice before making any financial decisions. Investments can go down as well as up and you may get back less than you invested.


About  gpfm

gpfm are an independent financial planning company dedicated to the provision of personal, professional, and objective-driven advice for our clients. We have been awarded the Chartered Financial Planners title by the Chartered Insurance Institute for offering high quality, independent and informed advice that meets the needs of our clients.