What's the right amount to have in an emergency pot?

in_need_of_direction

This is the year when I subscribe to my employer's pension and start to make mortgage in roads. I know I also need to have some savings as an emergency fund. Does anyone have any suggestions as to what these should be? 6 months outgoings, 3 months salary, etc

Cheers

Glen_Clark

Nobody is better qualified to answer that than you are because nobody knows your individual circumstances better.
But its worth bearing in mind that if you invest in equities you can convert them back to cash in a couple of weeks.

Linton

Six months expenditure is the usually quoted figure to provide reasonable backup in case you lost your job.

Have you thought through whether paying off your mortgage is the best use of any spare income?

opinions4u

There's no fixed answer, although 3-6 months net pay is the figure I'd work towards.

Employment benefits, insurance policies, elements of lifestyle that you could easily give up to save money come in to play when determining the "right" figure. But if you could stretch 3 months net pay over a year by combining cash with cut backs you're giving yourself a decent buffer.

Ringfencing this pot for severe events is important too. It's for illness that reduces your income. It's for redundancy. It's not for a holiday. It's not for a car repair. These other things should be saved for separately.

Most people will take a long time to get to 3 months net pay in a contingency fund. There's no shame in having less. But if you have less than is appropriate for your circumstances the key is to keep topping it up each payday.

lalman

I only have 2 weeks but i think thats okay for me as i have a permanent secure job and relatively young (27) and no debt obligations. (i could always move back in with my folks - worst case).

If you have kids etc and a less secure job - i.e. if the risk is higher then i would definitely have a higher fund than me.

YorkshireBoy

lalman wrote: »

...i have a permanent secure job.

I've had a couple of those too. The first ended in 2003 with redundancy, and the second in 2009 under similar circumstances.


I'm now on my 3rd secure job.

in_need_of_direction

Thanks guys. Glen, wasn't even dreaming of equities, more an ISA each for the 2 of us. Linton, you're totally right about considering better approaches than overpaying mortgage specially as our interest rate is only 0.66%. Only prob is that every time we have gone the saving route, we have spent the money. While not the most MSE way, overpaying is safest for us.

Prothet_of_Doom

YorkshireBoy wrote: »

I've had a couple of those too. The first ended in 2003 with redundancy, and the second in 2009 under similar circumstances.


I'm now on my 3rd secure job.

This is why I'm a contractor. I don't do permanent and won't discuss the possibility of going permanent if my hiring manager decides to want to make me an offer.

I have a 2 year buffer. :eek: But the intention at some point is to use 1/2 of it as a deposit on a buy to let.

Prothet_of_Doom

lalman wrote: »

I only have 2 weeks but i think thats okay for me as i have a permanent secure job and relatively young (27) and no debt obligations. (i could always move back in with my folks - worst case).

If you have kids etc and a less secure job - i.e. if the risk is higher then i would definitely have a higher fund than me.

What your saying is assess your circumstances, and how far you are prepared to fall. (if fall is the right word).

I was made redundant in 2001 (and 2009) and my mother said "don't worry, worst case, you can sell the house to me, and rent it off me" which upset my wife greatly. Surely she could give us the money towards the interest on the mortgage and we'll pay her back once I find work ?

lawriejones1

People will tell you that you need '6 months' or '3 months' but this is really quite ambitious for most people.

I personally aim to keep a few thousand (around £3,000) in cash or easy access savings accounts, then get the rest into either an ISA or paying off any debts. In a rather old-school throwback I also keep around £500 in the house (hidden) in cash, as I quite like to have it there.

If you are ever unemployed you can make massive savings on the 'essentials' that you currently pay for and pare back all expenses to a more manageable level.

But, having £10 in a jar is a better plan than most people have, sadly.

racing_blue

£10 in a jar is a phenomenally poor plan, unless perhaps 9 years old and outgoings are mainly sweets.