How much ready cash is enough?

Post by Mearns & Company in News

As the economic strain ratchets up, what level of cash savings should you aim to keep to hand?

Building up a savings buffer is important to provide a resource should you lose your job, become ill, split from a partner, or simply need some reserves to dip into with bills rising far faster than earnings.

Many families do not have this, with The Resolution Foundation estimating that 1.3m families have no savings at all, while research by Moneyfarm suggests that one in three people has less than £1,500 saved. This can leave them struggling to pay unexpected bills, with more than one in eight adults admitting they would be forced to use credit cards or overdrafts to cover an out of the blue expense of £500.

Building a decent savings pot can underpin greater financial resilience, but the question remains, how much should you be looking to keep aside?

Financial experts say ideally families need to think beyond a one off large MOT bill, or boiler replacement and look to cover at least three or potentially up to six months of essential bills. This should provide some headroom in case of redundancy or sudden illness.

Saving enough to cover six months of mortgage repayments, energy and food bills may seem like a tall order. For households with two earners, three months may be a more realistic target.

Boosting savings at the current time is not easy, with higher bills taking a greater slice of wages. But building this buffer should be a longer-term project. Figures from the Office of National Statistics in 2020 show that the average Brit had savings of £6,757. However, for 25–34-year-olds, this was £3,544, rising to £20,028 for those aged 55 or over.

The insurance option

Those looking to build savings at present may benefit from the slight rise in interest rates, giving them marginally better returns. But it could also be worth considering insurance policies, such as income protection, which pay out an income to cover essential bills in case of illness. These are not low cost policies, so may not be appropriate for everyone, but those that already have them in place should think twice before cancelling them in the current climate. Any short-term saving on premiums could remove a valuable longer-term benefit in difficult circumstances.


The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.

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