how much is an emergency fund?

moomi

i've read varying amounts between 1 & 3 months salary on average- would that be gross or net?

caliston

It depends what your outgoings are. Do you have children to support? If you lost your job how long would it take to find another? Would there be more outgoings at one time of year than another (eg when annual bills are due, Christmas, car MOT time?).

I'd think about your worst-case outgoings based on the number of months you think it'll take to get another job, then add a bit more for contingency. More if you have dependants.

rainy_dave

A reasonable rule of thumb is to take your average monthly outgoings, mutiply it by 1.25 and assume that it will take you three months to get back up to full earning capacity (which accounts for the delayed first pay packet in many new jobs). That should cover you for most circumstances. A combination of an "Emergency fund" and some relatively high liquidity investments (60-day notice accounts) in your portfolio should mean that the emergency fund will get you through the worst period, but still leave you the option to draw down more funds if it takes longer than expected to recover the situation.

And remember to MSE to make sure that your "emergency fund" is still working as hard as it can for you i.e. in the best instant access high interest savings account at the time.

dunstonh

6-12 months expenditure is what is generally considered a suitable emergency fund.

There are variations of a theme. 6 months is most common and some use income instead of expenditure.

ailuro2

six months take home pay stashed away in a fairly accessible account.

Ours sits in the mortgage overpayment fund, but others leave theirs in a savings account that has higher interest rates if you don't withdraw- the plan being you shouldn't need it, except for emergencies.

It's not for a year-long tie in bond, though, for obvious reasons.