How much should I save for a rainy day?

grandplonker

What's the prevailing advice on an ideal savings pot?

A quick Google check suggests the Americans are advised to keep 3-6 months salary locked away. I'm not saving for a car, holiday or anything, I'm just saving for a rainy day. (Despite the implication, I assure you I do not wish to purchase a rainy day.)

I suppose there isn't a right answer. It's like saying 'how long is a piece of string.' I would still very much like to hear how long is your string.

I'm currently saving 10-15% of my salary. It goes 60% into a 3% savings account (Newcastle Building Society) and 40% into funds which averaged 8.5% a year since 2008.

I only count the savings account towards my rainy day, because when it rains you can get at it like taking out an umbrella. I don't know how long it takes to sell funds, but I would say by the time you have sold them and have your money back it's maybe stopped raining.

So at what point should I stop putting money into the savings account and put it all into funds, which make me more money?

redbuzzard

I think you have to decide what a rainy day is for you.

When I was a younger married man (I'm still the second of those) a buffer of 3 months wages made me feel a lot more comfortable - I was thinking mainly in terms of a period of unemployment, or unexpected financial demands such as having to replace the car at short notice.

I'm a worrier, and in my late 40s I decided I needed to consider that my income might reduce well before retirement, either owing to illness or more likely just becoming "redundant". The large PLC I worked in had almost no middle or senior management over 55, even though the pension scheme NRA was and is 65. My aim became to fund a retirement at 65 but to make sure I could if necessary at least support the two of us for 5 years before that.

Sure enough, my rainy day arrived in mid 2012 when I was made 'redundant' just after my 59th birthday. The redundancy and notice payments were enough to keep me going for 2 years and savings will take me to 65 without being too depleted before my 'best' pension, the one from my last job, kicks in.

Whilst I actually expected to get another job, I was happy to be in a position not to have to replace my full salary - I could afford to hold out for a job I really wanted to do and could enjoy. That has sort of happened too - the job never materialised, but a bit of freelance work has grown to 3 clients currently for which I am doing short term consultancy contracts. I enjoy the work, which I don't take on unless I like it and can really add value for the client. I'm as happy as I've ever been and that rainy day money has allowed me to enjoy what might have been a very unpleasant period of my (and my wife's) life.

I think about this whenever I read or hear anything about planning for retirement - I have no statistics, but I have a feeling that at least as many people have their retirement date chosen for them as choose it themselves - the unemployment figures omit a lot of 55+ year olds, especially men, who are out of work but not claiming benefits.

It's all very well to raise pension age to 67 and beyond, provided people have the opportunity to support themselves until then. I don't think most will be so lucky, unless they can build up that cushion.

Eco_Miser

I'd say six months spending.
It doesn't all have to be instant access, just available before you will need it - if the rainy day turns into a monsoon.

HappyMJ

grandplonker wrote: »

What's the prevailing advice on an ideal savings pot?

A quick Google check suggests the Americans are advised to keep 3-6 months salary locked away. I'm not saving for a car, holiday or anything, I'm just saving for a rainy day. (Despite the implication, I assure you I do not wish to purchase a rainy day.)

I suppose there isn't a right answer. It's like saying 'how long is a piece of string.' I would still very much like to hear how long is your string.

I'm currently saving 10-15% of my salary. It goes 60% into a 3% savings account (Newcastle Building Society) and 40% into funds which averaged 8.5% a year since 2008.

I only count the savings account towards my rainy day, because when it rains you can get at it like taking out an umbrella. I don't know how long it takes to sell funds, but I would say by the time you have sold them and have your money back it's maybe stopped raining.

So at what point should I stop putting money into the savings account and put it all into funds, which make me more money?

3-6 months spending or £6,000. I pick £6,000 as that amount does not affect any means tested benefits if you lose your job due to redundancy, sickness or any other reason.

If you are saving much more then buy a house and put the extra savings towards paying off a mortgage.

If you own a house and have no plans to move then consider saving excess money into a pension.

Derivative

6 months is fine IMO.

'Proper' investments may be volatile, however, keep in mind that if you did have to draw from them if times were bad, you would essentially only have to take small monthly amounts, negating somewhat the potential dips. It's not as if you'd suddenly have to grab multiple years' income back, selling the whole lot.

jimjames

Most investments you can get out within 5 days. You might not get the price you want at the time you want to sell which is why investments are generally considered long term. However most investments are actually quicker/easier to access than many fixed term savings accounts!

As outlined above it is the spending requirement that you need to consider. What if - boiler breaks, car needs replacing or a period of unemployment. There are certain discretionary items you'd be able to cut out but other things like mortgage would still need paying. Although as many people appear to have no buffer or net debt, at least having some savings will put you in a better position than many others.

badly_dubbed

Im aiming to have a fall back of £25,000.

thats one years pay after tax and NI to keep me afloat in the same way i live right now, not anywhere near that target yet however.

atush

I'm not saving for a car, holiday or anything, I'm just saving for a rainy day.

How do you propose to pay for you next car/holiday? The Question about what is a rainy day to you might not be the same as for someone else. I consider a car breaking down and too expensive to repair a rainy day, whereas buying a new car just because you want one is not.

How much is relevant to personal details in MHO. If you own your home, more than if you rent (if still paying a mtg) and if you have dependents, more than if you are single.

If you have a mtg and several children, then more than 6 months is advisable.

The Spending or Salary choice is your also, but I say spending as if you lost your job you wouldn't be paying taxes out of a salary so it could be less. And costs can be lower when not commuting to work. The money would last longer if spent only on essential outgoings.

Doshwaster

I would say that 6 months net salary is about right. With some serious belt tightening (cut out holidays, Sky subscription and luxuries) I could probably survive for a year on that. On top of that, if I was made redundant I'd also get a decent settlement as I have been with my employer for 12 years. In fact, there are many days when I'd just love to be made redundant.