Emergancy fund: how much?

ambitiouspanda

How much should you put aside for an emergency fund? I just turned 25 (if necessary, I earn 50K and live in London ++++ monthly take home is £2867 -- I put £1000 in savings or will be from June/July).

My target this year is to save £6K. I am two months away from closing my credit card (£2K more to pay off).



Goals overall:
2018 - Save £3-6K (I want to put this amount into a Nationwide account + save £800-1000 to put into a Vanguard investment account. I won't touch this for years).
2019 - Save £8-10K (first home and whatever goals) --> I will obviously add more money over the years. The £8-10K is the foundation amount.
2020 - Start paying off my student loan (£25K or so.. 3K fees -- I am on plan 1)... or start putting money aside for my future children...



Life goals (and will achieve this.. God willing):
I want to earn enough money to buy a home in London (South Kes, Battersea or Richmond... etc.) and send my kids to private school.
I want to be debt free, maybe open up a business (extra income in addition to my job in finance).


I would be open to any mentoring.

DrEskimo

Typically between 3-6months of expenses. Me and my partner are both quite highly qualified, so don't imagine it would take us long to find replacement jobs, and it's unlikely we would both lose our jobs at the same time, so we have budgeted 3months of expensive each.

We also have no personal debts outside of the mortgage or kids, so the main focus is the mortgage. I think once kids enter the fray, we will probably up this amount, while accounting for the obvious increase in expenditure.

I personally keep mine in a separate account, mainly to get the high interest (it's building up in a Nationwide flex current account, and their regular savings account at 5% interest), but also to keep it out of sight...!

"2019 - Save £8-10K (first home and whatever goals)"

I think if you are planning on buying in London/surrounding counties, you are going to be in for a shock....£10k deposit won't get you far I'm afraid...!

"2020 - Start paying off my student loan"
Are you on plan 1 or 2? At £50k salary, it might be worth it to save on interest if on plan 2, but on plan 1 I think the incentive is less appealing...?

Stubod

..about 6 months of your current actual "living costs"...

eskbanker

ambitiouspanda wrote: »

2018 - Save £3-6K (I want to put this amount into a Nationwide account + save £800-1000 to put into a Vanguard investment account. I won't touch this for years).
2019 - Save £8-10K (first home and whatever goals)

In your shoes I'd steer clear of long-term investing and would concentrate on debt eradication, building an emergency fund and then saving for a first home, in that order. Check out Help to Buy and Lifetime ISAs for the latter....

Drp8713

Mine is currently back up to £7k after I invested a few thousand of it previously. My income is similar to yours.

It is good to have a buffer there, however I really hate holding cash in any significant amount as the return barely keeps up with inflation.

ambitiouspanda

DrEskimo wrote: »

Typically between 3-6months of expenses. Me and my partner are both quite highly qualified, so don't imagine it would take us long to find replacement jobs, and it's unlikely we would both lose our jobs at the same time, so we have budgeted 3months of expensive each.

We also have no personal debts outside of the mortgage or kids, so the main focus is the mortgage. I think once kids enter the fray, we will probably up this amount, while accounting for the obvious increase in expenditure.

I personally keep mine in a separate account, mainly to get the high interest (it's building up in a Nationwide flex current account, and their regular savings account at 5% interest), but also to keep it out of sight...!

"2019 - Save £8-10K (first home and whatever goals)"

I think if you are planning on buying in London/surrounding counties, you are going to be in for a shock....£10k deposit won't get you far I'm afraid...!

"2020 - Start paying off my student loan"
Are you on plan 1 or 2? At £50k salary, it might be worth it to save on interest if on plan 2, but on plan 1 I think the incentive is less appealing...?

Hey - thank you for this reply. I want to save a £10K base and add more to it over the years to buy a home in London. Sorry this wasn't clear.


I am on plan 1. What do you mean save on interest?

Anonymous101

I've heard anywhere between 3 and 12 months of living costs.

The recent ChooseFI Podcast on Emergency funds pretty much sums up my feelings towards it and why I choose to have around 3 months saved. Its worth a listen if you've not heard it yet:

https://www.choosefi.com/066-the-emergency-fund/

Basically I feel as though there are very few events which would see me needing to dip into the fund at all. If I were to lose my job I'd likely get a redundancy payout or at least notice period which would take me up to 6 months or so anyway.

In the event of unexpected bills if it was more than 3 months worth there would be several options open to me to smooth the cost. Including putting a temporary stop to savings for a month or two.

All up the opportunity cost of holding more than 3 months in cash is too great to me.

ambitiouspanda

eskbanker wrote: »

In your shoes I'd steer clear of long-term investing and would concentrate on debt eradication, building an emergency fund and then saving for a first home, in that order. Check out Help to Buy and Lifetime ISAs for the latter....

Hi , yes this is exactly my plan. Thank you for sense checking this...As my post states, clear debt, then start saving for an emergency fund... then the other goals etc.

ambitiouspanda

Anonymous101 wrote: »

I've heard anywhere between 3 and 12 months of living costs.

The recent ChooseFI Podcast on Emergency funds pretty much sums up my feelings towards it and why I choose to have around 3 months saved. Its worth a listen if you've not heard it yet:

https://www.choosefi.com/066-the-emergency-fund/

Basically I feel as though there are very few events which would see me needing to dip into the fund at all. If I were to lose my job I'd likely get a redundancy payout or at least notice period which would take me up to 6 months or so anyway.

In the event of unexpected bills if it was more than 3 months worth there would be several options open to me to smooth the cost. Including putting a temporary stop to savings for a month or two.

All up the opportunity cost of holding more than 3 months in cash is too great to me.

I am listening to it now. Thank you!

DrEskimo

ambitiouspanda wrote: »

Hey - thank you for this reply. I want to save a £10K base and add more to it over the years to buy a home in London. Sorry this wasn't clear.


I am on plan 1. What do you mean save on interest?

Ah OK, that makes sense.

So you already are paying back your student loan. It comes out your salary after tax, and you pay back 9% for everything you earn that's over £18,330. So on a £50k salary, you will see that they are taking about £230 per month already to repay this loan. Since interest rates are currently at 1.5%, anything you repay on top of this, will save you the 1.5% interest you would of otherwise been charged.

Considering the interest is so low, it's arguable you would be better off just paying that additional overpayment into a bank with a higher interest return.

One reason people like to pay down debts is because they can be burdensome in times of hardship. However student loans are different, in that you only pay them back while you are earning, so it's not the same as a standard loan where you are still expected to pay, despite not earning.

They are also written off when you turn 65, or 25 years after you started paying ti back, depending on whether the loan was taken out before or after the academic year of 2005/06.

More details on the student loan repayment website.

Fatbritabroad

I keep between 12 and 15k in cash but im 100%equities so use this as almost a bond holding as im not keen on bonds at the moment. This equates to about 4 months current spending. I have another 10k in p2p which i could get to instantly barring a massive down turn. The rest is in a s and s isa