How much to keep in an emergency fund?

debtfreeforlife

Hi,


I'm sure this question has been asked multiple times but I'm wondering how much money I should try and keep in an emergency fund please? I'm currently redoing all my budgets having received a pay rise recently. I've had a number of big expenses in the past few years including buying a flat in an expensive city and replacing my car, so am keen to build up my savings having decimated them recently! I have no debt beyond a mortgage.



For context - I am on an above average salary in a permanent job with six months sickness pay, but I am single so I only have myself to rely on if something goes very wrong with my flat, my car or my health. My mortgage is relatively low but I live in a flat and am conscious that my service charges and ground rent have increased (by a small amount) every year that I have been living here. I'm aiming to save up around £4,000 in an emergency fund which would cover three months spending as I currently am and four months if I stripped down to essentials. I also save monthly into car and home funds to have a bit extra in case of minor repairs (£500 or less) but that wouldn't cover a large unexpected expense. After that I'd like to move to paying into an inaccessible ISA to prepare for longer term large expenses e.g. moving again, car replacement. But I don't have any life insurance and am not keen to trust it considering how many opt outs there are, and I am worried that that might not be enough in the case of a real health emergency.


How do other single folks handle this kind of forward planning please? How much do you feel you need to have spare just in case?

YBR

Similarly I'm aiming for equivalent of 6 months income, plus separate targets for major expenses.

jonnygee2

6 months is standard. It depends on your job too, ie how long it would take you to get a new one and whether you would get a redundancy payment if you were made redundant. Also, the state of your house and car and how likely it is you'll need a new boiler / engine etc.

Basically, map out a scenario that looks a bit like worse case (but still realistic) , see how much it would cost, and save that.

3 months is fine if you are confident you could replace most of your income quickly and you live in a new build!

tacpot12

If you don't have Income Protection Insurance, sort this out as a priority. If something bad happens with your health, then once your sick pay has ended you will need something to replace you income. This is what Income Protection Insurance does. It gets cheaper, the longer you can defer the point at which it starts paying. If you can defer it for 52 weeks, it is not to expensive. You can survive for 52 weeks if you have six months sick pay and six months of living expenses saved.

You should have life insurance as it is normally a condition of your mortgage. I would recommend level term insurance for the outstanding amount of the mortgage, as this can be as cheap as decreasing cover insurance. There are no get-out clauses with proper life insurance polices, except they won't pay if you take your own life. Cost should be minimal, a few pounds a month.

MEM62

I have £2K available in cash. (That is sufficient for most things.)

Other than that I do not keep anything else outside of my S&S ISA, which currently has around two years living costs in it.

colsten

tacpot12 wrote: »

If you don't have Income Protection Insurance, sort this out as a priority. If something bad happens with your health, then once your sick pay has ended you will need something to replace you income. This is what Income Protection Insurance does. It gets cheaper, the longer you can defer the point at which it starts paying. If you can defer it for 52 weeks, it is not to expensive. You can survive for 52 weeks if you have six months sick pay and six months of living expenses saved.

You should have life insurance as it is normally a condition of your mortgage. I would recommend level term insurance for the outstanding amount of the mortgage, as this can be as cheap as decreasing cover insurance. There are no get-out clauses with proper life insurance polices, except they won't pay if you take your own life. Cost should be minimal, a few pounds a month.

I agree with Income Protection / Critical Illness insurance. I am not sure about life insurance though. The OP is single, so it may not make sense.

debtfreeforlife

Thank you everyone, these are really helpful points. I think in that case I will aim to keep about six months' worth accessible, I won't use it unless it's an emergency and it isn't like ISA rates are so good right now that I would really be losing much interest by keeping it accessible. My home is around 10 years old and the car is four years old and in (knock on wood) relatively good shape. And if it fails its MOT next week now I'll know why!



I wasn't told I had to get life insurance as part of my mortgage, I needed home insurance and that's included as part of my service charge. I didn't think life insurance would be necessary for me because if anything happened my parents would just sell my home - there is enough paid off the mortgage that it's highly unlikely they would make a loss. However I will definitely look into income protection and critical illness cover, thank you for mentioning this!

No_6

£20k

but this is a internet forum ??

System

I'd get a cheapish life insurance as the later in life you leave it, the more the premium goes up, particularly if any health issues crop up along the way. You may not be single forever, your parents may not have the money at hand to pay for the funeral you deserve and may have to borrow money to cover that cost over an extended period while they try and sell your house ………………………. all whilst grieving. Remember, you are younger than they are so anything you can do to make an unexpected death easier for them would help.

PS On the horribly morbid subject of death, have you made a Will?!



Just a thought.

Flobberchops

colsten wrote: »

I agree with Income Protection / Critical Illness insurance. I am not sure about life insurance though. The OP is single, so it may not make sense.

Come on Colsten, if OP dies how will he pay for his funeral? Imagine the indignity of having to take a payday loan to pay for one's own burial and wake. I wouldn't be caught dead stooping to that.

enthusiasticsaver

If you have a pension there is a life insurance element as part of that called Death in service benefit. You can nominate a beneficiary if you are single.