Emergency funds

KeepOnKnitting

I am trying to work out in my head what I need or want in the way of an emergency fund, and how much it should be. I thought I would ask you all what you do for yourself.

For example, when I think of an emergency, I think of broken washer, car, fridge etc. But then I save money for my car expenses each month, and would just get a replacement fridge or washer from ebay or freecycle or similar.

Then I think about if I had to go and see my family urgently, but that I could easily cover on my credit card if I needed to.

The only other emergency I think of would be losing my job or going into hospital for an extended period and therefore losing my job. For those, I feel that maybe £3k in a high-interest account would be fine, and I wouldn't really need instant access.

What does everyone else plan for with their emergency fund?

datlex

There's two types of emergency fund. One pays for things like a broken washing machine or an unexpected break down of a vehicle. The other saves for a job loss and covers mortgage or rent and bills for a short period. I keep the two separate at present.

TARDIS

Depends on your job security, illness cover, ability to scale back living expenses if lose your job or are too ill to work etc
If you think £3k would cover your living expenses for at least a few months then probably okay for you.

Doesn't really matter what others have as their situation will be completely different to yours eg some people's mortgage payments may be the best part of £3k a month so that would be totally inadequate for them.

Linton

It isnt just loss of job or boiler/car/washing maching breakdown. You could have to deal with both. The whole purpose is to avoid the need to get into debt which cannot be repaid in the short term and to avoid the need to sell investments during what may be a bad time. So I think the standard advice of 6 months living expenses is reasonable before starting serious non-pension investing.

Novice_investor101

I have 6 months salary (can be stretched to 10 months, or 12 if I'm really frugal) living expenses in a cash ISA paying 1.1%. it's not a great rate, but it's easily accessible & I like the Virgin set up I already have with a 0% credit card & a reg saver. I leave that money well alone, it's the "absolute disaster" fund.

My reg saver or 0% credit card would be used for things like a broken washer.
Any surplus over the 6 months salary in the ISA goes into a S&S ISA, as holding any more in cash isn't gonna make my money work hard. & When the reg saver matures I put all but £500 into the S&S or LISA & start another reg saver.
(Pension is workplace, so taken care of).

ValiantSon

[QUOTE=KeepOnKnitting;73713647}Then_I_think_about_if_I_had_to_go_and_see_my_family_urgently,_but_that_I_could_easily_cover_on_my_credit_card_if_I_needed_to.[/QUOTE]

Would you then clear the balance in full from your next statement? If not, then this would be a bad choice, and you would be much better off saving a little bit extra as cash in your "emergency fund" to cover such an eventuality.

KeepOnKnitting

ValiantSon wrote: »

Would you then clear the balance in full from your next statement? If not, then this would be a bad choice, and you would be much better off saving a little bit extra as cash in your "emergency fund" to cover such an eventuality.

Absolutely. My credit card gets cleared in full every month. The only debt I carry and have to pay interest on is my student loan. :money:

KeepOnKnitting

Thanks for the input. The sanity check was good, and didn't throw up any circumstances I didn't think about.

Puddylove

I have a few different emergency funds.
One is for car breakdown, new washing machine, unexpected bill. That one is £1k and in a savings account with a card.
The next one is for loss of my income - and is at around 3 months expenses. I keep it in a savings account with a decent rate.
Finally, I have one for vet bills as my animals are uninsurable.
Everyone is different though.

ValiantSon

KeepOnKnitting wrote: »

Absolutely. My credit card gets cleared in full every month. The only debt I carry and have to pay interest on is my student loan. :money:

That's good to hear, but you appear to be talking about credit card spending in a normal month. Would you have the cash available to cover increased costs in an emergency (as you describe)? If so, then great, but if not, it would be worth putting a bit more aside.

Eco_Miser

KeepOnKnitting wrote: »

For example, when I think of an emergency, I think of broken washer, car, fridge etc. But then I save money for my car expenses each month,

Would that cover a new (to you) car?

KeepOnKnitting wrote: »

and would just get a replacement fridge or washer from ebay or freecycle or similar.

If that would be sufficient then you don't need much in the emergency fund to cover it.

KeepOnKnitting wrote: »

Then I think about if I had to go and see my family urgently, but that I could easily cover on my credit card if I needed to.

That covers the immediate spending, but what would you clear the card with.

KeepOnKnitting wrote: »

The only other emergency I think of would be losing my job or going into hospital for an extended period and therefore losing my job. For those, I feel that maybe £3k in a high-interest account would be fine, and I wouldn't really need instant access.

If that is enough for all your bills for however long it takes to recover, then find new work, fine. BTW, the highest interest accounts are instant access, since they're current accounts.

KeepOnKnitting wrote: »

What does everyone else plan for with their emergency fund?

I'm already retired, and have a guaranteed income, so I don't need to cover job loss. I've paid around £3k each for a new boiler and a new roof, as well as the few hundred each for new white goods.