How much emergency cash fund to keep?

FirstTimeSolo

Hello all!
I would appreciate your thoughts on how much emergency cash fund one should keep. I have a secure job, private health insurance, no debts. I live in a rented apartment which I have been in for many years. 
How many months' expenses should I keep as cash to cover rent, bills, food? Anything else to consider? 
Thanks. 

meat_n2_reg

I normally keep 6 months living expenses accessible just in case however 12 months now with c-19 and risk of job loss potentially greater depending where you work / what you do 

MaxiRobriguez

FirstTimeSolo said:

Hello all!
I would appreciate your thoughts on how much emergency cash fund one should keep. I have a secure job, private health insurance, no debts. I live in a rented apartment which I have been in for many years. 
How many months' expenses should I keep as cash to cover rent, bills, food? Anything else to consider? 
Thanks. 

I would ignore however strongly you feel about how secure your job is, and carry an emergency pot which will see you through in the event of no income for however long it would take you to find a new job (which only you can answer, as it'll be based on your industry and skills).

Even if it is only a 5% chance of happening, if that risk did come to fruition it's no good having an emergency pot that's also only 5% of what it could have been.

FirstTimeSolo

Thanks for your replies. I am thinking of keeping around £20k cash fund and invest the rest. I save between £2k-£2.5k a month, maybe more during lockdown which will also be invested. 

pjcox2005

I personally keep lower, particularly as I've got a long notice period in my contract and access to credit cards, but it's personal preference.
I'd prefer additional money invested as I consider it low risk I'll suddenly require 6 months wages rather than keep that or more in cash. Obviously though you run the risk that you could feasibly need to sell an investment at the "wrong" time, but that reduces the further you've taken the approach. I.e. I've had money held like that for 5+ years already so it's not short term funds.
So higher returns now for potential future risk of having to access it at the "wrong" time, compared with lower returns now (and potentially losing money on inflation) but with immediate access.

FirstTimeSolo

My notice period is fairly long. 3 months if I leave and 5 months if the company wants me to leave, so I could potentially keep lower. Maybe I will start with a larger cash sum and reduce it slowly over the next year.

eskbanker

IMHO it's also worth considering other scenarios where an emergency fund might be needed, rather than simply involuntary redundancy - one being severe illness or injury preventing you from working, for example.

FirstTimeSolo

eskbanker said:

IMHO it's also worth considering other scenarios where an emergency fund might be needed, rather than simply involuntary redundancy - one being severe illness or injury preventing you from working, for example.

Good point thanks. However how would one calculate how much money would be needed in such a scenario? 

eskbanker

FirstTimeSolo said:

eskbanker said:

IMHO it's also worth considering other scenarios where an emergency fund might be needed, rather than simply involuntary redundancy - one being severe illness or injury preventing you from working, for example.

Good point thanks. However how would one calculate how much money would be needed in such a scenario? 

I don't think it's ever going to be possible to calculate a figure that covers all possibilities, so, beyond the usual rule of thumb recommendation of six months spend (which in itself doesn't have any quantifiable science behind it), taking a stab at what seems reasonable is as good as you can hope for....

Alistair31

6months of monthly expenditure is what I hold. If the worst happened I’d be able to cut back to essentials only in the month and eek it out a bit longer. 

MaxiRobriguez

FirstTimeSolo said:

eskbanker said:

IMHO it's also worth considering other scenarios where an emergency fund might be needed, rather than simply involuntary redundancy - one being severe illness or injury preventing you from working, for example.

Good point thanks. However how would one calculate how much money would be needed in such a scenario? 

You may want to check your employer benefits. Mine gives me critical illness cover which covers any health related absence for 6 months.

The difficult thing with health absences is you'll have no idea how long you actually have to be off for. Many serious ailments that would genuinely keep you from working are not fixed within 6 months.