How big an emergency fund should I keep

NorthernMonkey1

Anonymous101 said:

With that in mind, for a long time I didn't have any emergency fund. I zero base budgeted and I saved ~50% of my salary into 100% equities funds within my S&S ISA, if something did ever come up I would just reduce savings down for that month.
Recently though I have thought that perhaps it would be wise to have at least some emergency fund in case of redundancy or my employer going bust or introducing pay reductions etc. So in addition to my 3 months employers notice I now keep another 3 months basic costs in cash savings.

This is almost exactly my position. In February I was saving 50-60%, and if anything cropped up, I'd just reduce savings that month. Everything in Vanguard LifeStrategy 80, giving me about 6 years of expenses if I needed to, with the option to extend a little by making a few more budget cuts (like petrol for going to work, and zero holiday spending). Although my employer seems super stable at the moment, with work actually increasing, there a lot of people (eg Pilots) with really secure jobs who are now out of work. 
With that in mind I've been increasing my EF, and I think 12 months expenses which is 6 months income is a good bet.
Keeping cash is for peace of mind. 0.1% interest is only £2 a year and a hiding a mini safe took an afternoon of work 

Sea_Shell

Aminatidi said:

Prism said:

Job stability is a big factor. I work for myself and if I can't work for any reason I have zero earnt income. Therefore I try to maintain 2 years of income reserves in cash. However I wouldn't expect everyone to do this.

I think job stability plays a large part.
There's also the "sleep at night" factor which is difficult to put a figure on.
I've about £190K invested and similar outgoings to NorthernMonkey1 and I'm sitting on around £70K of cash.
I know that's too much though I haven't quite worked out what to do about it but I also know that personally I wouldn't sleep well if I only had a buffer of 4 months expenditure. 

We have about 17% of our portfolio in cash, which would last us anything between 6-10 years, depending on whether we adjusted our spending in a crisis!    Probably too much in many peoples eyes, but yes, we do sleep easy at night.

Albermarle

Cash (actual cash in £20 notes) : £2000
Cash in bank (savings account at 0.1% interest) £3300

Better to put it in Premium Bonds , you might win , even if it is only the average which would be about £65 a year .

Generally an EF is handy even ignoring larger economic issues.

Plenty of unexpected things can happen at any time , not just in current situation .

csgohan4

depends on one's risk, also depends if you have any income protection policies and when they kick on when you can't work due t ill health. Say it kicked in after 6 months, of course best to have 6 + months reserve

Notepad_Phil

Personally I went for 6 months of income for my emergency fund when I was working. Yes that can be quite a bit of money, but I was the sole bread winner with Mrs Notepad and 2 mini Notepads to look after, and having the security of that money meant that I did sleep very well at night.

Luckily I never needed to make use of that cash but I've never regretted having it, and now that I'm early retired I have even more in cash as part of my retirement income strategy.

DiggerUK

We haven't bothered with emergency funds since I don't know when. We just turned round one day and asked why we had such a fund. Looking in to it we realised that we could get liquidity from a number of sources immediately without any forward planning, we concluded that such funds are dead money. EF's are just a well worn mantra that on closer examination are no use at all.

We had been  keeping 'cash in hand' in PB's or current accounts and have stuck to that plan ever since. The other asset  we have are good limits on 0% credit cards..._

You have money in various places that you could access asap, plus £2k doing nothing, at least put that in PB's..._

Eco_Miser

There are better places to keep your emergency fund than a 0.1% interest account.  Virgin Money Current Account 1% on £1000 for one. Consider Regular Saver accounts, actually more like 'circulating money for higher interest' accounts the way many round here use them.

BananaRepublic

eskbanker said:

There's no right or wrong answer to this as there are too many personal factors to support a one-size-fits-all position, such as job stability, age, health, dependents, attitude to risk, availability of credit, condition of property, etc....

Very true. 

You need to assess your risk. How secure is your job? How long is your notice period?  If you lost it, how in demand are your skills within a commutable distance? Do you have any real or potential health issues? 

You can buy insurances, to guarantee an income and pay your mortgage, these are worth looking into. 

I have a ~4 year cash buffer in a bank account, with the rest in collective investments, but I retired recently at age 56 and that looks to have been a good decision. Someone younger would not need to keep anything like as much cash in the bank. 

Hopingforthesimplelife

I am mid thirties and hold about 2 years worth of expenses in cash. Not optimum for returns, but means I feel less concerned with current events (especially as I work in a sector that is not particularly resilient to economic downturns).

My cash to investment split is approx 60:40

Out of interest, what is the rational behind using monthly income as the measurement? Surely outgoings is the most useful benchmark to weigh up what EF you need?

Bravepants

Montlhy income just provides an extra level of comfort and bunce....an emergency fund for your emergency fund?