Paying an emergency bill by dipping into your savings seems like a logical thing to do. But a new report by uk.Investing.com shows that even when Brits have savings, they don’t want to touch them.
We take a look into why Brits are holding onto their savings and why such savings more important than ever.
Brits are being more cautious with their savings
According to the report from uk.Investing.com, when asked about paying an emergency bill using their savings, only 35% of Brits said they would.
Others would either use a credit card (18%) or take out a personal loan (6%) instead. A further 15% of Brits would rather reduce spending in other areas to cover the bill. In addition, 16% would borrow money from family or friends instead.
These findings show that households across the UK are being more cautious with their money and choosing to protect their savings rather than using them to pay emergency bills.
Previous research showed that Brits have had to dip into their savings to get them through the coronavirus pandemic. This could be a sign that Brits are now valuing their savings more than ever.
Why you should save
If you’re one of the many UK citizens who are wary of taking money out of their emergency fund, it’s time to ask yourself why. It could be that you simply don’t have enough saved up to make you comfortable.
Building an emergency fund is always a good idea in case you lose your job, need to pay for an emergency bill for home or vehicle repairs, or have to travel unexpectedly. Having a safety net means you won’t have to take on debt to get through a difficult time.
Experts recommend saving around three months’ worth of expenses for emergencies. If that sounds intimidating, you can start by saving smaller amounts and build towards your goal.
Cons of taking on debt
There are many reasons debt is bad for you. Perhaps the biggest one is that debt costs you money. That £1000 emergency bill you’re paying will become bigger once any interest starts accumulating.
Debt also keeps you from reaching other financial goals you might have. The more debt you have to repay, the less you can save or invest in your future. And debt can hurt your credit score, which is partly based on the balance between your credit limit and how much of it you’re using.
Paying an emergency bill without savings
Unexpected bills can be stressful, especially if you don’t have enough money in your savings to cover them. Before you reach for your credit card, take a look at your finances to see if you can cover the expense some other way.
Reducing your Christmas expenses this year could save you a significant amount of money. Or look into selling things you no longer use or need to make some extra money. If you can work out a payment plan (especially an interest-free one), this might be even better than dipping into your savings.
