Rainy Day fund vs overpayments

ender4

I have a wife, 2 young kids, and a household income of around £52k.

I was wondering how much i should keep in reserve/savings before putting all my spare cash into mortgage overpayments.

I currently have around:
£3k saved in instant access savings
£2k in long-term savings (can withdraw with penalty)
£10k in shares (at current prices)
£1k in pure gold coin

No other debts.

Is that enough, or should i build it up a bit more saving before putting all my spare money each month to my mortgage?

LisaLou1982

Only you can answer whether or not that is enough!

How long would the money you have saved keep you going in the event that you and your wife couldnt work?

Tiglath

Howabout working out 3-6 months living expenses if you lost your job?

ender4

Wife only earns £6-8k per year, as she mainly looks after the young kids.
So the main earnings is my salary.


I'd be reluctant to cash in the £10k shares as they are only just back to the price i paid, and they also pay good dividends.

But if i really needed it (ie: lost my job) & cashed in the whole £16k, then it would last us 8 months.

Without the shares, the other £6k would last us 3 months.

Is that enough?

LisaLou1982

Well id discount the shares as they can go up as well as down. So you have a solid 3 months worth of "reserve" money.

I have around 12k in my ISA which i use as "oh sh*t" money, and for me, that would be enough to pay the bills for 9 months without being penniless.
However, i dont have any kids to think about so obviously things would be different for you as you would have different priorities to me.

I guess it all comes down to, what do you feel comfortable with?

LisaLou1982

Just a thought - what about putting 50% of your spare money into savings and the other 50% into overpayments with the mortgage?

That way, you can always make a lump sum payment if you want to, but youd also have access to the cash if you needed it

Matt_The_Chippy

How about changing to an Offset mortgage? That way you are serving two needs at once. You can have a reserve fund for the rainy days as it only takes a day to take out the money if needed. Also the money is sat there helping you pay less interest on the mortgage.

For me it works brilliantly, I try to add to the pot as often as possible. I never saved before. Got to be worth a thought.

getmore4less

I think you need to think in terms of emergency(a bill) and disaster(loss of income)

Emergency.
you need access to ready money either cash/credit to cover the unexpected big bill

NOTE: a proper budget will have most bills covered anyway so emergency should be rare.

depending on your current savings rate this may be small or need to be a bit bigger in case a few problems come at once. the higher the savings rate the more you can use credit.

eg if you are saving £500pm that is instant access to about £1k in the time a credit card bill comes in, you just don't save/overpay for 2 months.

Disaster fund: you can use longer term places for this you hope you won't need it and the penalty for draw down might be a loss of interest(term savings) or not quite the right time(shares)

For this you need months of expences depending on how long you think it will take to get a job.

I think 6 months min upto 12months as that gives you time to rethink before you run out of money.

Alternatively set up so you can get benifits.

Offset mortgage is an option and some like Barclays you can set them up so you are offset in a overdraft allowance so it does not impact benifits(but that is complicating things).