Is there a time to not build an emergency pot?

Forum_Name

I understand how important an emergency pot can be, i just wonder if there's a time you shouldn't be trying to build one and should instead focus elsewhere. Say you're a first time buyer or at least looking to be one, you don't earn so much: perhaps just over £1k per month. You understand it's important to save towards a pension (or with the Lifetime ISA about maybe we should say retirement), you understand the importance of an emergency pot so that you have say 3 to 6 months wages as a minimum maybe, and you can't buy a house without saving for one of those either. You understand that it'd be great if you could put 100% of your spare cash in to each of these three areas so they'd grow quickly but that is impossible but if you split it between all three then all three will grow much slower even though they'll still grow.
In short i'm looking to see if at the stage of saving for a first home should one of the other two areas be put on hold until the house is purchased or is it best to keep contributing to all areas? I don't really wish to waste an IFA's time with this so wondered if the people here could offer some insight? Thank you.

MaxiRobriguez

I sometimes think the necessity of 6x worth of monthly earnings as an emergency pot is a little overblown, especially for young people starting out, who could rely on a 0% credit card for most of their "emergencies".

The concept is that it covers you if you need to stop working, or if you're made redundant. However if you're young then the likelihood of needing to stop work is much lower and the ability to get another job in the face of redundancy is easier as you'll have fewer demands and constraints about what it is you do.

The only thing I would suggest is if you're sacrificing your emergency pot to buy a house then you'll need to create some sort of emergency pot shortly after as you'll be responsible for the boiler rather than your landlord. If that goes, it's probably something you won't be able to put on credit and pay down over two years.

Just be smart about it. The pot is there in case of an emergency after all. If you're debating whether or not to have one it's essentially a risk/reward call.

tiger_eyes

I agree it's a big ask for people on low incomes to save generously into pensions and emergency funds while also building up a sufficient deposit to outpace growth in house prices. A pension is important but can potentially wait a few years. An emergency fund is also important, but maybe £1000 and available low-cost credit will cover you for now. But saving to buy a house will probably only get harder over time.

Forum_Name

Just looking at my payslips over the past few months and they vary but not a huge amount. 1150, 1050, 1100 & 1200 would be the past 4, give or take a few quid.

I don't particularly want to rely on credit cards in the event paying back becomes a problem. A loan of a parent is one thing but spending a companies money is another.

I understand your point that pensions can wait but at the same time i don't want to get in to the habit of making them wait and before you know it i'm chasing so with that in mind would you say it's fair to say then that it may be best to gear towards a house primarily, not neglect the pension but maybe not pay in so heavily towards it and perhaps leave or dribble in to the emergency pot then?

Eco_Miser

Don't bother with an emergency pot if you have expensive debt. Clear the debt first.
Then build a pot of one month's spending - so if your pay doesn't turn up on time you can still pay your bills.

After that you build a pool of money that you hope will be used to buy a house - but if an emergency happens, you can dip into that pool. Real emergencies, not overspending your budget.
As mentioned, once you buy the house, you've got a greater chance of an emergency happening, so don't neglect building your emergency pot alongside paying your mortgage, and buildings insurance and everything else.

Pensions can wait - but pay in enough to get the free money from your employer.

By the way, an IFA doesn't advise on this sort of thing - they advise on making investments.

frugalandsave

always get the free money from Work.

When we bought our house last year, we went all out on the deposit and had nothing left after. I quickly build up a small emergency fund again of about 6 weeks, part of this was my bond which was for the house we rented at the time. I dont go beyond the 6 weeks, as i have a credit card that gives 0 % on purchases or if i need more cash it costs 1.99 % for 2 years to get it from my credit card.

Rest of money i save, goes into my ISA, Sipp, Lisa.

Forum_Name

Eco_Miser wrote: »

Don't bother with an emergency pot if you have expensive debt. Clear the debt first.

Thank you for the advice. I actually have no debt at all but i appreciate you were probably saying it in a just in case sense.

Then build a pot of one month's spending - so if your pay doesn't turn up on time you can still pay your bills.

Fair point. Thank you.

After that you build a pool of money that you hope will be used to buy a house - but if an emergency happens, you can dip into that pool. Real emergencies, not overspending your budget.

I agree with your view on real emergencies. Needing the latest phone or having a takeaway is not an emergency. Car has died and cannot get to work or my leg is snapped in two and i need some real time off work would be an emergency.

As mentioned, once you buy the house, you've got a greater chance of an emergency happening, so don't neglect building your emergency pot alongside paying your mortgage, and buildings insurance and everything else.

Thank you.

Pensions can wait - but pay in enough to get the free money from your employer.

That would be 5% in the workplace pension then, alongside their 3%.
As far as pensions can wait goes, how long can they wait? I know that is a piece-of-string type question but i'm mindful of getting to an age with a pot much smaller than i should be at. I don't want to struggle in later life, but at the same time i want to be able to buy a house. It's about finding the right balance. I just worry about neglecting the retirement side of things as many i suppose can see it as deal with tomorrow.

LHW99

You could look at opening a LISA, as it could be used either for the house deposit, or for retirement if not.

Forum_Name

frugalandsave wrote: »

always get the free money from Work.

When we bought our house last year, we went all out on the deposit and had nothing left after. I quickly build up a small emergency fund again of about 6 weeks, part of this was my bond which was for the house we rented at the time. I dont go beyond the 6 weeks, as i have a credit card that gives 0 % on purchases or if i need more cash it costs 1.99 % for 2 years to get it from my credit card.

Rest of money i save, goes into my ISA, Sipp, Lisa.

Thank you.
I wish i could save up 6 weeks wages quickly. Unfortunately due to the amount i earn i can save it but i wouldn't call it quickly. Thanks for your response though.

LHW99 wrote: »

You could look at opening a LISA, as it could be used either for the house deposit, or for retirement if not.

That is actually what i am using for the house purchase really.

Novice_investor101

When I was saving for my house deposit (took about 10 years) I didn't have a separate emergency pot - I just had savings. After saving/acquiring £50k, I bought a new car for £10k (old one clapped out), used £25k for the house deposit, & about £10k on fees & refurbishments. I stopped spending with £5k left in the bank.

The reason for buying the expensive (relatively) car? Because I knew houses are money pits when you first move in & I'd be better off buying it first - I've still got the same car 7 years later in good nick.
I still spent money on the house, but this was money from my salary not the £5k emergency pot. I've now built this back up to more money & regularly invest in a LISA & stocks ISA as the house is no longer a money pit.
I've paid in to a pension throughout & never cut back on that in order to save for other things, which I now thank my younger self for!

DiggerUK

If you have a savings LISA, then it is a dual purpose house deposit saving vehicle and emergency fund. If you feel happier with two savings accounts then fine.
When you get mortgaged, concentrate on killing the mortgage asap, zero rate credit cards will take care of emergencies. Retirement savings are important, but horse before carriage, i.e., house before retirement plans.

As to worrying you might waste a financial advisors time, don't, and don't let them waste your time and money either.

Best of fortune..._