Emergancy fund: how much?

eskbanker

ambitiouspanda wrote: »

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.

Perhaps it looked like I was agreeing with you, but, just to spell it out, I was questioning why you'd want to start investing with Vanguard this year if it doesn't contribute to you achieving these goals and would actually be diverting money away from what you say you want to put it towards....

ambitiouspanda

DrEskimo wrote: »

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.

Hi DrEskimo,


I haven't started making payments. I wanted to clear off my cc debt and save at least £4K of an emergency fund. I completed my studies in 2015 (I took a year out) and started in 2011.


Would you pay off your student loan now? or just leave it as it come out automatically (my student loan is taken out before I even get paid).


Also, do you have any tips for any of the above in my OP?

ambitiouspanda

eskbanker wrote: »

Perhaps it looked like I was agreeing with you, but, just to spell it out, I was questioning why you'd want to start investing with Vanguard this year if it doesn't contribute to you achieving these goals and would actually be diverting money away from what you say you want to put it towards....

Ah, I get you. Sure, the additional £800-1000 is what I can save by cutting my typical spending money. So I thought about playing with it in Vanguard. It doesn't actually divert my plans because it does not interrupt my saving amount. Would you advise against Vanguard?

DrEskimo

ambitiouspanda wrote: »

Hi DrEskimo,


I haven't started making payments. I wanted to clear off my cc debt and save at least £4K of an emergency fund. I completed my studies in 2015 (I took a year out) and started in 2011.


Would you pay off your student loan now? or just leave it as it come out automatically (my student loan is taken out before I even get paid).


Also, do you have any tips for any of the above in my OP?

Personally, I would just let the automatic payments take care of it.

Good article from MSE here

Nope, other than I agree with eskbanker. You're doing all the right things by the sounds of it! Pay down the CC debt as fast as possible, save your emergency fund, then use things like HTB and LISA to help maximise your savings for a deposit on a house. That's more than enough to keep you busy for now!

Prism

I have my own business and keep about 6 months of salary/dividends in it as a buffer. As this way of working is considerably more risky than normal employment (no sick pay, risk of no work etc) I am trying to get this buffer up to 12 months.

pjcox2005

I'd get to the point your maximising interest on regular savers, maybe a little in P2P but after that I wouldn't hold it in cash just for the sake of having an emergency fund.


With access to a 0% credit card then very little need to access cash immediately. Like someone mentioned above, when employed more often than not you'll have redundancy payment or notice period to prepare and hopefully new job quickly, so the chances of needing to use up 6 months of cash are very remote.


Yes you need it saved, but I'd prefer to keep it in investments or areas of potential higher return than easy access and low rates.

Joe_Bloggs

Clear your interest bearing debts as soon as possible rather than invest in Vanguard or other speculative ventures. I am down 2.5% with Vanguard 60 -> 80 in 6 months. I invested expecting to lose 15% at worst.

J_B.

Anonymous101

ambitiouspanda wrote: »

I am listening to it now. Thank you!

No problem. Big ERN is one of the best speakers I've heard at bridging the gap between investing for best returns and real world practicality.

Even if you're not into Financial Independence or Early Retirement then his stuff is worth listening to.

Anonymous101

Joe_Bloggs wrote: »

Clear your interest bearing debts as soon as possible rather than invest in Vanguard or other speculative ventures. I am down 2.5% with Vanguard 60 -> 80 in 6 months. I invested expecting to lose 15% at worst.

J_B.

I'd agree clearing debts should be a priority.

An expectation that investing in fairly heavy weighted equities funds would only lose you 15% at any one time might have been a little misguided though. Drops of far more than that have occurred several times. And of course 2.5% isn't anywhere near that.
The other way to look at it is that if you're regularly buying those funds you're investment now is costing you 2.5% less than it did some months ago. A positive for me.

firestone

the most popular answer when you see this question asked on forums & money sites is 3 - 6 months but it could be 3 - 6 years for some to sleep at night so its what makes you happy.Also many people have mentioned losing a job but having seen it first hand an illness/accident to you or a partner etc can be even more challenging and may not give you the option of redundancy money