We all face unexpected financial challenges in our lives. The fridge packs in, the car needs major repairs, there’s a leak in the house, or you find yourself suddenly unable to work. Whatever the curveball, having an emergency fund or rainy day savings can be a real lifeline. Get in the know as Loqbox puts on its wellies to splash about in rainy day funds.

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What’s an emergency fund vs rainy day fund?

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Firstly, it’s important to know what we mean when we refer to an emergency fund, or to rainy day savings. The terms can be used interchangeably, but there is actually a subtle difference. An emergency fund is a pot of cash that you set aside for unexpected and urgent expenses, such as medical emergencies or loss of income. 

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On the other hand, a rainy day fund is more general and covers unexpected situations like a surprise bill or the cost for the urgent repair of an appliance. While they do have very slightly different meanings, arguably all of those things could be called ‘emergencies’. So, from now on we’ll just call it an emergency fund.

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Why are emergency funds and rainy day savings important?

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Well, because life’s unpredictable! We never truly know what’s just around the corner. Without a financial safety net in place to cover any surprise expenses, you could find yourself relying on credit cards, loans, or other forms of debt. This could negatively impact your credit score and put you in a cycle of debt. 

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If you can afford to spare even a small portion of your monthly income, you should definitely consider putting some aside to improve your financial wellbeing. By having an emergency fund in place, you'll have peace of mind, safe in the knowledge that you're prepared for most financial challenges you might face.

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How much emergency fund should I have?

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So, how much should an emergency fund be? Well, while there's no one-size-fits-all answer, we’d generally recommend that you aim for three to six months' worth of living expenses. This should give you a comfortable buffer for financial challenges without having to resort to borrowing. But of course it will depend on your individual circumstances.

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If you have dependents or you work in an industry with fluctuating job stability, you might consider saving more cash for your emergency fund. 

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Whereas if you live alone, on fairly modest means, it may be that three to six months’ of living expenses will be enough. It will really depend on what you’re comfortable with, and what you think is achievable.

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How many months’ expenses should your rainy day fund be?

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To work out how much emergency fund you should target, you can find emergency fund calculators online. These will basically look at your monthly expenses and multiply them by three or six (the one we’ve linked here will give you three months’ worth, double that if your aim is six months’ worth). 

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It's a useful starting point, but another approach is to just multiply your monthly income by three or six — or halve, or quarter, your annual salary.

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To help you work out how long it will take you to save to your target, you could build a 50-20-30 budget. Break your post-tax income into percentage chunks: 50% for what you need (rent, mortgage, bills) and 30% for what you want (casual living costs). That leaves 20% to go towards your emergency fund every month.

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How can rainy day money help your credit score?

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Having an emergency fund helps your financial wellbeing and improves your situation. It means you're less likely to rely on credit or take on debt because you’ll have your finances under control. Of course, there’s nothing wrong with borrowing responsibly to hit goals or tackle life projects. But using debt to get out of trouble can be a different story! 

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Your credit scores (yes, you have three, not just one!) are calculated by the top three credit reference agencies (CRAs) in the UK: Experian, Equifax, and TransUnion. 

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Those agencies collect data to compile your credit history based on lenders you’re currently using or have used in the past (like your mobile phone contract supplier, for example). 

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This data is then used to work out how creditworthy you appear to future lenders that would be running a hard credit check for you. This data sharing helps lenders decide whether they will offer you credit, and at what interest rates. 

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To summarise: Your credit scores reflect your credit reports in an easier to understand scale for the public to understand how a lender may view their application. Use this scale to find where your scores land: 
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The data in these tables was last checked in May 2023.

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Why should I focus on my credit score while I’m building up some rainy day money?

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Because credit building is a long-term gain! Not only does a better credit score improve your chances of being accepted when you want to take out a mortgage, credit card or a large loan, but getting the best deal on those interest rates can literally save you £1,000s in the long run. So, it’s well worth getting your credit score as high as you possibly can. Loqbox Save could be especially helpful as it allows you to save a pot of money and to build your credit score over a year of saving!

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Improvements to your credit score are not guaranteed.

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An emergency fund helps to keep your finances balanced. Not only will you be less likely to  turn to last resort expensive credit options, but it also shows potential lenders that you’re more financially responsible and demonstrates that you have a safety net, should your credit repayments become tricky after one of life’s surprises jumps out at you.

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When you’re saving towards an emergency fund goal, your credit scores should be in the conversation. You can check them for free, as often as you’d like to, and without impacting the scores, using these services:

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ClearScore (uses Equifax data)*

Credit Club (uses Experian data)

Intuit Credit Karma (uses TransUnion data)

_{*For transparency, we wanted to let you know that ClearScore pay us a small commission if you sign up using this link.}

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What if I can’t afford to grow an emergency fund?

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“Save the pennies and the pounds will save themselves”, it’s an old saying, but it’s true. Building your emergency fund can take time and discipline. But if you stick with it, even making small contributions over time, the benefits will far outweigh the effort.

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If you already have too much debt to commit to your emergency fund, don’t panic! Prioritise paying off your highest-interest debts before anything else. The interest that you pay on money owed will likely be much higher than the interest you make on money saved so it makes sense to clear your debts first and boost your saving power.

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‍Start by setting a realistic savings goal and commit to regular contributions. Cut back on unnecessary expenses, automate your savings, use round-ups on your banking apps, and consider putting any windfalls or extra income directly into your emergency fund. Small steps can make a significant difference in the long run. Good luck!