Even wealthy don’t have enough cash for rainy day

by

Close to a quarter of UK’s wealthiest households do not have enough savings to cover an emergency

By Toby Walne, Financial Mail on Sunday

Published: | Updated:


Close to a quarter of the UK’s wealthiest households do not have enough savings to cover an emergency, a new report suggests. 

A total of 23 per cent of households with an income of £100,000 a year could not pay a large unexpected bill or cover their essential outgoings for three months using their savings. 

Among the very wealthy who earn more than £150,000, 12 per cent do not have enough savings, the study from Hargreaves Lansdown reveals. The wealth manager recommends that people of working age should have three to six months’ worth of essential spending in an easy access account to cover emergencies. This amounts to around £3,000 in savings on average. 

Worry: A total of 23 per cent of households with an income of £100,000 a year could not pay a large unexpected bill or cover their essential outgoings for three months using their savings

However, it believes that retirees should aim to have one to three years’ worth of savings – around £9,000 on average. This is because retirees lose their earning potential and so can’t pay for one-off costs out of income. 

However, 51 per cent of UK households do not meet this target – falling to 46 per cent for those in retirement. 

Unexpected expenses could include a car breaking down, a boiler replacement or redundancy. 

Although the wealthiest should in theory find it less challenging to foot such costs, they often live expensive lifestyles, with bigger houses that need maintaining, more expensive cars and private school fees. 

While these may seem like luxuries at first, over time they can start to feel like necessities that can’t be scaled back in order to free up cash for emergencies. 

Sarah Coles, personal finance analyst at Hargreaves Lansdown, suggests the first step to calculate how large an emergency savings fund you need is working out what you spend. 

‘Some people keep a spending diary so they can see where their cash is going. Next, you need to decide which of those expenses you want to be able to meet if you lose your income,’ she says. 

‘Some people want to cover the lot, others want to ensure they’re still comfortable, while others just choose to keep the essentials.’ 

She adds that how many dependents you have and how secure your income is will also affect how much you need to save.

Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.