Savings - how much

linuxpenguins

Is deemed a respectable 'rainy day' amount?

Is there some sort of calculation that shows what you realistically should have based on salary?

Also, is it better to save or pay more towards mortgage?

Thanks

polymaff

"Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and six pence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Micawber / Charles Dickens

eskbanker

linuxpenguins wrote: »

Is there some sort of calculation that shows what you realistically should have based on salary?

There's no magic answer but the usual rule of thumb on here is 3-6 months' worth of income, or expenditure. But a lot depends on age, job security, dependents, health, commitments, etc, etc...

linuxpenguins wrote: »

Also, is it better to save or pay more towards mortgage?

Depends on relative rates, but always worth having the emergency money readily accessible.

YorkshireBoy

linuxpenguins wrote: »

Is deemed a respectable 'rainy day' amount?

How much do you spend on essentials per month?
How long would you realistically expect to be out of work should you lose your job?
Upon answering the above you'll know how much you'll need.

Is there some sort of calculation that shows what you realistically should have based on salary?

No. A larger salary tends to push people towards bigger mortgages and more expensive cars!...not towards saving more.

Also, is it better to save or pay more towards mortgage?

That would depend, although not entirely, on savings benefit vs mortgage cost wouldn't it?

juniordoc

Overpay your mortgage! No incentive to save with rates as they are at the moment. Prioritise getting yourself out of debt.

jimjames

juniordoc wrote: »

Overpay your mortgage! No incentive to save with rates as they are at the moment. Prioritise getting yourself out of debt.

Definitely not in my case. You really can't generalise like that. Savings you could get 5% on, investments more. Why pay off debt at 2% when you can get a higher return by investing it?

YorkshireBoy

juniordoc wrote: »

Overpay your mortgage! No incentive to save with rates as they are at the moment. Prioritise getting yourself out of debt.

Really?
Incentive No 1: Build an emergency fund...the OP's objective.
Incentive No 2: Make around twice as much in interest on savings as you're paying in mortgage interest...common sense, surely?

juniordoc

There is a limit to how much savings you can earn 5% on. High interest current accounts are certainly not a bad place for a rainy day fund but can't hold vast amounts.
OP asks if they should save it overpay their mortgage, implying they are financially able too and therefore might not need such a large rainy day fund.
Of course you can't generalise, but OP hasn't given us much background, and its true that interest rates have never been this low, so historically there has never been a worse time to save.

YorkshireBoy

juniordoc wrote: »

OP asks if they should save it overpay their mortgage, implying they are financially able too and therefore might not need such a large rainy day fund.

From OP's very recent posting history, they are about to come out of a 5 year fixed rate mortgage at 4.29% APR, and will be taking up another deal with the same provider next week (effective June) at 2.09% APR.

Now we don't know how much cash they currently have (ie saved alongside paying that very high mortgage rate), but since the often mentioned target is 3-6 months essential outgoings I'm guessing if they had to ask the question they wouldn't have that much.

So going forward, the question is should they overpay a 2.09% APR mortgage, or should they save that money at 5% AER? And remember, for a single person that's £2.5K initially and then up to £1,300 a month going forward. And for a couple, it's £7.5K initially and then £2,600 a month.

Still think they should overpay the mortgage?

Of course you can't generalise, but OP hasn't given us much background, and its true that interest rates have never been this low, so historically there has never been a worse time to save.

See above.

jimjames

juniordoc wrote: »

Of course you can't generalise, but OP hasn't given us much background, and its true that interest rates have never been this low, so historically there has never been a worse time to save.

You're also ignoring the option I mentioned about investing. Once you have filled all the current accounts paying a decent rate then you have a good cash buffer emergency fund. Beyond that there might be no point accumulating more cash and you should be able to beat a 2% mortgage rate with investments long term.

trailingspouse

Get the rainy day fund established first. Then think about other things you might need/want to do - house maintenance, replacing the car, having kids. Then think about paying off the mortgage.

The important thing to bear in mind when you're overpaying the mortgage is that you can't get that money back, no matter how much you might need it, so if there are other things you feel you might need to save up for, do that first.