How to continue building your emergency fund

In my last article I talked about How to start building your emergency fund.

To give a quick recap, the amount you decide to have in your emergency fund can vary depending on your personal preferences and situation. What's more important is knowing how to start building your emergency fund so that you have a safety buffer to protect yourself from any financial emergencies. After all, you don't want to be working on your financial independence only to be set back a couple of years because you weren't prepared.

In this post I'm going to continue on the topic and talk about how you can continue building your emergency fund. Why do I think this is important?

Well let's say you decide to go for an emergency fund that can cover 6 months of your expenses; housing, groceries, utilities bills, debt payments, transport, maybe even some non essentials; it can become quite a hefty sum. If your expenses come to something like £1,500 a month then you're looking at building up £9,000 for an emergency fund. At £2,000 a month you're looking at building up £12,000.

Do a very quick Google search for "Average UK savings" and you'll realise we're looking at a sum that is much more than what most people have saved up.

Not to mention, this would be after you've had to pay your way in life each month, it's not like you can take all of your monthly earnings and smash it into your emergency fund. You have to work with what you have remaining after you've paid for your living costs.

So clearly, you need a strategy to figure out a way to build that emergency fund up and decide what makes sense in terms of speed and spending flexibility.

In the coming examples I will stick with the same numbers that I worked with in the previous article; that would be a monthly income of £2,900 with £1,265 being spent on the essentials. That would leave £1,635 free each month to be budgeted into other things.

Let's take a look at these numbers and calculate what they really mean.

First, if you build a 6 month emergency fund that only covers your essential costs that would be a sum of £7,590:

Monthly essential costs: £1,265

Emergency fund lasts: 6 months

Emergency fund balance needed: £7,590

(£1,265 × 6)

And if you build a 6 month emergency fund that covers your full monthly income, that would be a sum of £17,400:

Monthly income covered: £2,900

Emergency fund lasts: 6 months

Emergency fund balance needed: £17,400

(£2,900 × 6)

Not a small amount to save up. Luckily I have some strategies that can help with building it up over time.

Just like with building the first month of your emergency fund, you will want to strike a balance between speed and flexibility when it comes to your monthly contribution. However, the situation is slightly different compare to just "starting" and will change as you make more progress on the amount you have built up.

Let's take a look at the following strategies:

  1. Maximise contributions from your leftover money, to hit the target at top speed.

  2. Make regular contributions of a set amount, leaving some flexibility in your budget.

  3. Optimise between speed and flexibility by working through the numbers.

  4. Taper your contributions over time where you start fast but slow down as the risk is reduced.

You might recognise the first three strategies from the previous article, and the calculations are basically the same except they will continue for a longer period of time since the target emergency fund value is higher. So there will be some considerations when it comes to spending flexibility and risk exposure to a financial emergency.

The last strategy is new and tries to address some of the drawbacks of the others. We'll get to that later.

So let's take a look at each of these.

Maximise Contribution

This is simply a continuation of the maximise contributions example from the previous article, where you will be putting in all of your leftover money at the end of each month into your emergency fund. That means you will be contributing £1,635 each month until you hit the target, with zero spending flexibility in the build up.

Here's how your emergency fund will build up:

Essentials emergency fund balance needed: £7,590

Full emergency fund balance needed: £17,400

Monthly Contribution: £1,635

Number of months to hit essentials target: 5

(£7,590 ÷ £1,635)

Number of months to hit full target: 11

17,400 ÷ £1,635)

Continuing to build your emergency fund with maximum contributions of £1,635

Assuming you get your monthly income at the end of each month, any calculations on the number of months taken will need to be rounded up to the next whole number. In this case that would mean it takes 5 months to reach the essentials emergency fund balance, and a further 6 months (11 in total) to reach the full emergency fund balance.

So the benefit of using this strategy is obviously its speed and being the fastest time possible to hit your targets based on known income; 11 months might sound like a a while but considering you can build up £17,400 that's actually really good. You'll be well positioned to protect yourself from most financial emergencies, and ensuring that your financial independence isn't under threat.

But can you imagine not having any spending flexibility for all of that time?

You earn your monthly income, set aside the amount needed to cover your essentials and the remaining amount is put straight into your emergency fund. Not a single penny left for spending on something fun in life. Some people might be able to handle it but if you're thinking you would need at least some money each month to spend freely then maybe the next couple of strategies are better suited for you.

Nevertheless, this one is the fastest and you at least have that information for reference when it comes to making your final decision.

Regular Contributions

With this strategy we will also continue from the previous article's example where a contribution of £400 was being made each month. We eventually changed that contribution amount to speed things up a little but essentially it's the same thing so we'll be sticking with just the £400 contribution in this example.

As a quick reminder, there are two ways you can decide on how much each month you contribute on a regular basis:

  1. Just decide on an amount that you want to contribute each month

  2. Decide on the number of months that you want to hit the target in

At £400 a month here's how your emergency fund will build up:

Essentials emergency fund balance needed: £7,590

Full emergency fund balance needed: £17,400

Monthly Contribution: £400

Number of months to hit essentials target: 19

(£7,590 ÷ £400)

Number of months to hit full target: 44

17,400 ÷ £400)

Continuing to build your emergency fund with regular contributions of £400

Again the assumption is that you get your monthly income at the end of each month, so any calculations on the time taken will need to be rounded up to the next whole number.

By making regular contributions of £400 it would take just over 1.5 years to reach the essentials emergency fund balance, and just over 3.5 years to reach the full emergency fund balance. Considering the large sum that's needed at the end it shouldn't be a surprise that it'll take some time to build up, but here's something to take notice of; it takes 10 months to build up an amount that would cover 3 months of essential costs:

Monthly essential costs: £1,265

Three months: £3,795

(£1,265 × 3)

Monthly Contribution: £400

Number of months to hit target: 10

(£3,795 ÷ £400)

This is important to consider because having 3 months of essential costs covered by your emergency fund means you might be able to start feeling a bit more comfortable about your ability to handle a financial emergency. Let's say that emergency was a sudden loss of income such as your job, at least you know you could keep yourself afloat for 3 months while you try to figure things out.

Your emergency fund isn't fully built up just yet, but you're also not completely exposed either.

With this in mind you might feel like it's a good strategy as it does allow you to have the benefits of much more spending flexibility when it comes to your leftover money. The flexibility to spend your money on things that you want is an important factor when it comes to long term financial independence, because it helps keep away the feelings of missing out on life and therefore gives you a much better chance of staying on track in the long run. It might take longer to reach the goal but at least you'll get there eventually; that's much better than making a lot of quick progress but then falling off the track because you had no balance.

At the same time, the amount of time it takes to build your emergency fund is also its drawback. The longer it takes, the more exposed you are; especially during the early stages since you won't have much build up. You might be able to get away with it and have something like a 2 year stretch of time where no financial emergencies happen, but if you're unlucky and you're hit within the next 3 or 6 months then you'll wish you made more progress sooner.

The risk of a financial emergency will always seem really small and really far away until it actually happens, so you don't want to drop your guard too much.

Obviously you could easily mitigate this a little bit by increasing your regular contributions, but maybe the next strategy is something more suitable for you to find a good balance.

Optimised Contributions

We're going to take things up a notch with this strategy but if you've read the previous article on How to start building your emergency fund then hopefully this won't be too unfamiliar.

Using the information known to us we can say that the maximum contribution approach will be the quickest at 11 months, but it will be at a pace that is tough to maintain due to the lack of spending flexibility. We can also say that a regular contribution of £400 each month is a bit too slow overall; 3.5 years to have a full 6 month emergency fund wouldn't be a problem if only the early stages didn't take so long to build and establish a baseline level of safety, such as 3 months of essential costs.

So we're going to see if there's a way to find a balance using the same two methods from before:

  1. Go for something in between your maximised contribution and regular contributions.

  2. Use the fastest speed known and figure out if it’s possible to introduce some flexibility.

The first method is simply a variation of the regular contribution, but with more money each month. I doubt there's any need to go into the numbers since you can just follow the previous strategy and make the adjustments yourself.

But let's look at the second method and use some calculations to see if we could find a nice balance between speed and spending flexibility. The first thing is to check if it's possible to match the speed of the maximum contributions approach, 11 months, while still keeping some financial flexibility. Here are the calculations:

Full emergency fund target: £17,400

Months to hit target: 11

Monthly contribution to hit target: £1,582

(£17,400 ÷ 11)

Spending Flexibility: £53

(£1,635 - £1,582)

Having £53 each month to spend on whatever you want is better than nothing but let's be honest, can you really keep yourself motivated for 11 months with just that amount?

Some people probably could, but I think there are many others who couldn't. Just think about all the weekends or evenings where people around you are getting up to something fun like going to the cinema, getting take out, going out for drinks, taking the family to the theme park, and all you're able to say is "I'll tag along in 11 months!".

I'm not suggesting you need to get influenced by what other people are getting up to, but at the same time you probably would want to be able to take part in some of the things you find fun and interesting.

So we need to introduce a bit more flexibility and that means the timeline needs to be extended a little bit. What about 18 months?

I picked this number because with the regular contributions at £400 it took 19 months to reach the essentials emergency fund target. In this set up we're going to hit the full emergency fund target a month earlier and still have some spending flexibility. Here are the calculations:

Full emergency fund target: £17,400

Months to hit target: 18

Monthly contribution to hit target: £966.67

(£17,400 ÷ 18)

Spending Flexibility: £668.33

(£1,635 - £966.67)

Having £668.33 to spend freely each month is way better than having just £53 wouldn't you say?

I feel like this is a pretty good balance; 18 months to build up £17,400 into an emergency fund that could cover your full income for 6 whole months while still having a decent amount of money each month to spend on whatever you wanted. At this point you can make a decision on if this is something that works for you, or if you want to adjust the calculation and optimise a little bit further you can do that too.

If you think the spending flexibility is still a bit too low then you could use the known information to increase it to a certain amount, for example £750 a month. This would mean you'd be contributing £885 a month to your emergency fund and it would take 20 months to hit the full emergency fund target.

On the flip side if you wanted to speed things up a bit you could try reducing the timeline to 15 months instead. This would mean you'd be contributing £1,160 a month to your emergency fund, leaving you with £475 of spending flexibility.

Either way, you're essentially using the information that becomes available to you to further optimise your contributions. It doesn't have to be perfect, but it's always good to know you put some thought into finding a balance that allows you to be consistent over the long run.

This strategy gives you the benefits of having the spending flexibility that is lacking in the maximum contribution approach, while still allowing you to hit the target in a reasonably quick amount of time.

Sounds perfect right?

There is a possible drawback. By maintaining a relatively high contribution amount into your emergency fund from start to finish, it takes away your ability to allocate money into other important things such as investing and building wealth. Yes, it's important to build your emergency fund but does it really make sense to maintain the amount you contribute each month when the risk and your exposure is gradually being reduced?

Doesn't it make a bit of sense to start focusing your money onto other areas of your financial independence once you have established a good level of safety?

Tapered Contributions

This next strategy is designed to address the drawback of the optimised contributions. Obviously, you could just maintain the high level of contributions and after your emergency fund has been built you then focus your money onto other things. But financial independence is about working the numbers and finding that correct setup so that you're not leaving too much on the table when it comes to building long term wealth.

The idea with this strategy is that you want to reach a level of safety quickly to make sure you are prepared and protected against a financial emergency, but you don't want to sacrifice your potential contributions to other wealth building activities, such as investing, for an extended period of time. This is especially the case once you've built up a fairly healthy amount in your emergency fund.

To start with this strategy you would split your target emergency fund amount into smaller milestones, and the aim is to hit the early milestones as quickly as possible to establish a baseline of safety. Once that is done you can slow things down gradually in terms of monthly contributions, thereby freeing up that money to be used elsewhere.

How you split our the milestones and contribution amounts is down to your own preference, but here's an example to help you work through this:

Continuing to build your emergency fund with tapered contributions that decrease as the emergency fund gets larger

Let's say you split your full emergency fund target into four equal milestones (25%, 50%, 75% and 100%), you can then start off with a high level of contribution to hit the first milestone as quickly as you can. This establishes an early baseline of safety as you will have £4,350 saved up into your emergency fund.

For the next milestone you can take your foot off the gas a little. This will reintroduce some spending flexibility back into your life with the knowledge that you're making good progress on your emergency fund. Full contributions for a full 11 months (maximum contributions strategy) is difficult to maintain, but if it's just 3 months to hit a milestone then it suddenly becomes much more reasonable.

As more progress is made and the milestones are reached, you can start to reduce the monthly contribution more and more in order to free up the money to go into other things. You could make a choice in giving yourself extra spending flexibility, or you could invest that money and have it grow over the long term, or you could do a range of other things depending on what your overall strategy is when it comes to reaching financial independence.

It will take a bit longer to reach the later milestones because you're contributing less each month but there's nothing wrong with that. What you're doing is simply adapting your contributions based on risk and exposure, which isn't a constant. Therefore it makes sense for you to make the same adjustment when it comes to the amount of money you are putting into your emergency fund.

The target milestones, contribution amounts and percentages are examples only and not the rule that you have to stick to for your own situation. The key point for you to understand is that you start off quickly to establish some safety, and once that’s been done you can slowly taper things off over time with the knowledge that you are less and less exposed with each monthly contribution that you make.

To Conclude

When it comes to building an emergency fund you will get lots of people out there giving you a cookie cutter answer, as though that's all there is to it.

Sure, setting a target of 6 months expenses is a straightforward place to start if you have zero idea on what you need but as we saw towards the start of this article, that financial number could potentially become quite daunting. That's where this article comes in, it's just a little bit more detail on how you could break it down and manage it over time.

Regardless of the amount you choose to build up you will always need a strategy to follow in order to give yourself the best chance over the long run to stay consistent and committed. It's going to take time, don't expect to suddenly have an emergency fund of any decent size within the space of a year. But if you understand the process you'll see that there's absolutely no problem with that.

Always try to take into consideration the power and advantages of keeping some spending flexibility, and at the same time keep in mind what it means to manage your risk and exposure in the early days. And don't be afraid of getting stuck into the detailed numbers, as that is where you'll find your answer on the right balance that works for you. Hopefully the different strategies that I've covered in this article can help you with getting to your own answer; they may not be completely perfect but it sure as hell beats simply telling you something basic like "save up 3 to 6 months of your expenses".


Don't wait for some magical number before you start "living". Life is full of surprises and you'll never be able to plan it perfectly. If you're doing sensible things with your money you'll eventually reach your goal. So start living now. The longer you wait, the less time you'll have. Money can be made, but time cannot. You are the barrier to the life you want to live, not a 4% safe withdrawal rate.

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