How much for emergency fund?

lemoncrush

I know it should be 3x the committed monthly outgoings (some even say it should be 3x monthly income) but there's genuinely no way we can save that much for the foreseeable future. Our current committed spending including repayments is of £4200 (or there abouts). We're thinking of then having £400 left for emergencies, £300 for unaccounted bills or top ops, and £500 for going out/general spending. Once we pay the credit cards (Apr 23), we'll be in a much better position of having other pots for Xmas, personal care, car fund, and holidays.

blue.peter

There are two considerations here:

1. What sort of emergencies are you looking to cover? Redundancy? Boiler replacement? Unexpected large car repair? What? How much will you need in the event that such an emergency arises?
2. How much can you afford to save?

I don't know where you heard three months' expenses, but I've heard a suggestion that it should be six months. I assume that that's to cover loss of a job and time to get another. That's clearly not relevant to, for example, a pensioner whose income is reliable. OTOH, that same pensioner might need to, for example, have their roof replaced.

Whilst you might only be able to save £400 a month, remember that that will accumulate: after a year (barring emergencies!) it'll be £4,800. You can't suddenly have an emergency fund appear out of nowhere. It has to be built up (unless you have a big stroke of luck). Give it time.

lemoncrush

For now... Car bills and things like a boiler. Eventually it will be for things like redundancy but, ironically thanks to a period of unemployment we're in no position to save that much yet. 

Northern_Tribe

Have you heard of Dave Ramsey, he is very American so you have to convert what he says to the UK situation. It might help

https://www.ramseysolutions.com/dave-ramsey-7-baby-steps

lemoncrush

Yeah, I don't agree with a lot of what he says. We're following the pots system which is as close as I'll ever get. 

MEM62

lemoncrush said:

I know it should be 3x the committed monthly outgoings 

Says who?  

Your emergency find is for you to determine based on your circumstances and what you can afford.  If you cannot build it relatively quickly, at least put something away each month so that it grown over time.   

Rich1976

do you need £500 for going out/ general spending as that does sound like a lot? an emergency isn't going to wait until you have saved up sufficient funds. you need to sit down and write a detailed household budget so you can see where every penny is going. these days it would be more prudent to have a 6-9 month fund which would include any periods of unemployment plus car breakdowns, the cooker blowing up, washing machine breaking down etc.
then you need to commit to start building that fund up.
it may not be as exciting as having lots of spending money but if something did happen you should hopefully be less likely to use credit to get out of an emergency situation.   
they do take a while to build but if you get into the habit of sending a certain amount on payday to a separate savings account you quickly learn to live on less money

Jami74

We live in a country with free healthcare, a benefits system, and for many people, easy to access credit. I think some of these 'should have X emergency fund' are American. Of course, it would be lovely to have 3 months outgoings sat in a spare current account doing nothing for just in case, but if a financial emergency came along that required 3 months of outgoings, I would probably have bigger things to worry about than regretting all of the occasional take-aways I'd had over the laat few years or the budget holiday I have about every 3 years. 

I have pots for Christmas, car fund etc. But I do not have a pot for unspecified emergencies. If it happens, I'll be winging it.

Rich1976

Jami74 said:

We live in a country with free healthcare, a benefits system, and for many people, easy to access credit. I think some of these 'should have X emergency fund' are American. Of course, it would be lovely to have 3 months outgoings sat in a spare current account doing nothing for just in case, but if a financial emergency came along that required 3 months of outgoings, I would probably have bigger things to worry about than regretting all of the occasional take-aways I'd had over the laat few years or the budget holiday I have about every 3 years. 

I have pots for Christmas, car fund etc. But I do not have a pot for unspecified emergencies. If it happens, I'll be winging it.

the 3-6 months outgoings would be if you lost your job and the savings would cover your essential bills whilst you look for a new job in the meantime. for many people it takes several weeks to find a new job so without the savings how is the mortgage, council tax etc going to be paid?

car breakdowns or the boiler needing repairing should be on top of that amount. its not sitting there doing nothing, it acts as an insurance in effect.  

lemoncrush

As much as I do stress about redundancy, I was able to "Wong" it last timw.and did Okish. I do want to have something build up, but not by taking away from my "leisure" activities 

Rich1976

lemoncrush said:

As much as I do stress about redundancy, I was able to "Wong" it last timw.and did Okish. I do want to have something build up, but not by taking away from my "leisure" activities 

but the title of your post says how much for an emergency fund? so you've been given suggestions as to how much should that be.
unfortunately 'winging' it is not a suitable way of planning financially of dealing with uncertain events and whilst you were lucky last time does not mean you will be next time. Sometimes leisure activities have to take a second priority whilst you make yourself more secure. many of us have had to do it, but personally i sleep better at nights knowing if i was to lose my job we would be fine for about 8 months without resorting to getting into debt. But each to their own!