Frugal Bytes - Moneysaving Questions from Readers

Reader Questions about Money Saving and Frugal Living

Hi NYK,

Pennies make pounds

This seems a bit rude to ask, but as the saying goes, if you don't ask, you don't know! So apologies up front.

How did you manage to save your emergency savings?

Do you keep your 'emergency savings' separate from other savings?

Would you recommend a certain amount for emergencies?

Any advice on this would be gratefully appreciated!



NYK Answers

I love questions and am forever researching 'stuff', so thank you for asking and rest assured that I don't find it rude in the least, it is a huge pleasure to be able to answer. Apologies if I waffle on a bit, I'm rather passionate about frugal living. :)

Many years ago, while in debt, I got together a bunch of friends in similar situations and we compared our budgets. At that time, we all had very different household incomes, ranging from under £10,000 to over £30,000! The amazing fact that I learned from what became a regular get-together was that we practically all had the same amount of disposable income after paying everything we owed - mortgages, rent, council tax and all other debts!  It was amazing! The magic number worked out at £4,000, so that's the origin of my target budget. Now, in 2014, the figure is simply the amount I know I can comfortably live off and be happy to do so. It's also the minimum amount that I know I need to earn in order to live debt free! If push came to shove, I have sufficient flexibility within that budget to make alterations and also afford the Council Tax.

After living on the £4,000 budget for many years, the debts slowly and painstakingly reduced until, in 2007, I finally became completely debt free. At that point, I had two options for remaining debt-free:

• Live within my increased means or
• Continue as though I still had the debts, but pay the equivalent amount into savings. (At that point, I had no savings.)

2008 arrived and I had decided to stick to my previous budget and frugal lifestyle while starting to seriously save. (That's when I took the 'Living on £4,000' challenge onto the Moneysavingexpert forums.) With no debts, every penny over £4,000 got banked and all other spends had to be paid from extra income or else things made to pay for themselves.

Fast forward to 2011, we scraped up enough to buy this cheap fixy-up for cash, but it completely wiped out every penny of the savings - my son even chipped in all his coin savings!
Plus point - we had no savings left but nor had we any rent to pay, just council tax and insurance for our own house.

Sticking with the £4,000 household budget, we are now slowly renovating the place while also saving for emergencies. I know I need £4,000 to run my household for a year, I know I realistically need another £1,000 to cover Council Tax and I know that incidentals may be needed along the way, so my goal is to have at least £5,500 in emergency savings and increase that by at least the rate of inflation each year, seeing as bank interest no longer affords us that luxury! THis, again, is what has prompted the latest edition of the Interest Beater' challenge in the forums.

Emergency savings are totally separate from 'normal' savings, so no mistakes can be made and I can't be tempted to spend from this pot. Initially, I needed to invoke all my will power to ensure every penny was saved. In saying that, I am using an instant access ISA, 'just in case'.

I hope this helps explain the way I view my finances, both in the frugal forums and here on the blog.

Feel free to continue asking questions and I do hope you will join me in the latest frugaldom challenge, as we hatch another great Billy Can plan and prepare to do some money magic.

NYK, Frugaldom