Do you invest your emergency fund?

csgohan4

chelseablue said:

Thank you all! So much great advice 
For background I am 37 and an employee, husband is 31 and self employed (we pay 15% of his income into a SIPP)
I have 2 credit cards both at £0 balance, 1 credit limit is £12,000 and the other is £8,000 so could use those if I really had too.
Our monthly direct debits are £1,400 so thinking of keeping £10,000 as cash which is 6 months worth of expenses.
Then maybe 10k to my S&S ISA. 
I've never considered premium bonds before, must look into it. 
Would you pay some off the mortgage? Balance is £206,000 with 27 years left. On a fixed rate of 1.79% until April 2023

I've stopped paying in extra into my mortgage as I have reached <60% LTV so makes no difference in terms of deals. It makes more economical sense to pump this extra money into ISA/ Pensions e.t.c. I make more money from this than I lose from the interest lost to the lender

Alexland went a step further and has an Interest only, and can still cover the mortgage payments.  

MovingForwards

I earn a lot less than most on this board, under £21,300 PY.

1. Anything wanted / needed within the next 5 years sits as cash.
2. Anything needed for later, early retirement, retirement are in PBs, S&S ISA, SIPP and pension.
3. I also overpay my mortgage each month.

1 and 2 get money added each month. 
Within 1 I have a savings pot just for paying the mortgage each month as JSA would cover the rest of my bills.

While OP can cover things on one income, what happens if she loses her job. Or one of them is unable to ever work again and the remaining one in work has to cut hours, change job to a lower paid one.

It's negative thinking, but worth looking at all angles to make sure they are covered.

Eco_Miser

TheAble said:

People talk about 6 months expenses and so on but what are true expenses really? The mortgage is the obvious one but most other stuff can be scaled down when things are tight. You can eat a little cheaper, cut out the holiday and so on. And if you did lose a job, then costs associated with said job are eliminated until you find a new one.
The point is, your expenses don't need to be a function of your income.
As for myself, I keep a few thousand in cash, usually 5-10k. The rest is invested.

Most of my expenses are fixed - Council Tax, TV Licence, Water, Electricity & Gas (could try using less, but if you're stuck at home all day ...) Broadband/TV/Phone (could maybe get a cheaper deal, but the broadband is almost essential these days), food - depends on how spendy you are normally.

Holidays, yes, they go. Job related expenses, you now have job seeking expenses.

I totally agree expenses should not be a function of income, which is why the emergency fund should be expressed in terms of months of expenses.

I normally have over £10k in cash, since I need to cover those months when no dividends are received, as well as impulse spending and actual emergencies.

Thrugelmir

chelseablue said:

I have 2 credit cards both at £0 balance, 1 credit limit is £12,000 and the other is £8,000 so could use those if I really had too.

Start using credit cards and the interest charges levied will soon diminish any gains previously made. 

Alexland

csgohan4 said:

Alexland went a step further and has an Interest only, and can still cover the mortgage payments.  

Yes we are almost now running our own investment trust with a mix of global tracker retirement accounts, property and investment trust ISAs (for some home bias and growing regular income) using an under 20% LTV mortgage to provide under 10% of low cost gearing against the overall portfolio value.

jimjames

Thrugelmir said:

Locking money into a ladder of fixed term accounts is a good way of eking out marginally higher returns. Nor does the return on investments always exceed the rate of inflation over a given time frame. 

Isn't locking into fixed term accounts actually worse than investments to use for an emergency? At least the investments can be realised at any point whereas fixed term accounts you would need to wait for the term to expire even if they are annually not all at the same time. In my view emergency funds need to be quickly available so regardless of interest rate would need to be instant access.