Emergency fund and new car fund?

pjcox2005

Rich1976 said:

Using your emergency fund to replace the car is a bad idea, unless it was absolutely critical you had to replace the car.
i also don’t see the point of just having an emergency fund and throwing everything else into pensions or Isa’s but then not having any cash spare for big ticket items? Because as you’ve now found, you need to replace the car but have no means of buying one.

so whilst I don’t necessarily agree with your wife that you should only have cash savings and no investments, I think it’s important to budget for an emergency fund and then any short term things which need saving up for in the next 5 years say such as holidays, cars, home improvements etc . Then once you’ve worked out what you need, put any spare left into investments .

its what we do and it’s great peace of mind knowing we can save up to buy something and not have to get into debt to do it .

It depends a bit on how big the emergency fund is, how much security you have in your job and the returns by investing above those you'd get from saving. If you build up an emergency fund plus funds for cars, house repairs etc then this may hardly be touched over a long period and earning less than investments.

Alternative is to accept emergency fund is dipped into at times and if a massive issue arose you've got investments. Particularly for cars for example if you purchase 4-5 years after buying the previous car. Potentially people have 3-6 months notice before losing an income for example so i wouldn't always be tied to having it in a savings account but then everyone has a different risk profile.

Rich1976

It’s nothing to do with the rate of return. The point I was making was that the other person needs a new car but has nothing put aside to pay for it as everything has gone into investments.

yes investments do give greater return in the long term but that isn’t the point of having savings available to pay for things in the short term. He now has to wait until he has saved up enough, borrow the money to pay for the car or dip into his investments.

it doesn’t make any sense to me to not have anything put aside to pay for these things .