LIFE is completely unpredictable, and has a fondness of pulling the rug from under our feet when we least expect it. More often-than-not, we find periods of success and contentment rudely interrupted by unforeseen circumstances and events. Unfortunately, these unexpected events tend to hit us most notably in the wallet, with expenses you could never have accounted for cropping up at the worst possible moment. For these reasons, and the examples that follow, you need a ‘savings safety net’ to fall back on when you find yourself in financial freefall.

Some financial experts advise having a savings safety net equivalent to three months salary, which on paper may seem a Herculean effort to amass.

Building a safety net means putting as much money as you can sacrifice aside in a savings account until you reach your target of three months salary, but before we go into how you go about setting up your safety net – consider these circumstances in which you might encounter trouble, without a safety net.

·        Redundancy: With the economy facing hard times, companies are more likely than ever to be looking to lay off some staff in order to make savings and keep their business afloat. If you were to suddenly lose your job through redundancy, a savings safety net would at least keep you going for a short period until you find a new job.

·        Illness/injury: Another expense which you can’t possibly account for is your health. Should you find yourself in bad health and unable to work for an extended period, a savings safety net would subsidise you until you were fit enough to work once again.

·        Car Troubles: Most drivers have been there at some point in their lives – car troubles tend to spring up at the worst possible time, generally towards the end of the month when funds are running low. How would you manage if you found yourself with a costly motor repair bill or worse still – the prospect of buying a new car if your current one becomes unusable? A savings safety net could cushion the blow.

·        A new addition to the family: Yourself or your partner might even find yourselves pregnant and met with a whole host of expenses you probably won’t have accounted for. Again, a safety net would break the fall somewhat.

·        Increased mortgage payments: The financial climate is ultimately beyond your control, and though you cannot hope to influence it, you can prepare for the worst. How would your finances withstand a sudden increase in mortgage payments? If you would struggle to keep up with the higher payments, then a savings safety net is definitely necessary.

Creating a savings safety net for circumstances which you will never see coming is as simple as opening an account with a high interest rate, to ensure that whatever amount you can sacrifice to put into your savings accounts will earn as much interest as possible. The higher the rate of interest is, the sooner you will reach your target of the sum equivalent to three months salary.

You should, of course, be mindful of the conditions of the account; as some have restrictions on withdrawals within a set period, and even penalties for any withdrawals you do make.

Mike Gwynne, spokesperson at MoneySupermarket said: With today’s financial climate, money is tight; however it is advisable to have a savings buffer; so that you have money available in the event of an emergency, a regular savings account is a great way to get in the habit of putting money aside each month.

“This kind of account usually pays a higher rate on lower balances, so you don’t need a big lump sum to invest.”

In the event of a financial emergency, whether it’s one of the things discussed here or another surprise expense, a savings safety net could mean that you don’t have to spend on credit cards or take out cash advances to cover the costs.

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[Mark Hooson writes for the personal finance team at Moneysupermarket.com, on the subjects of debt, credit and savings.]

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