Help deciding how much i need in Emergency fund

Flossymuldoo

Hi folks,

I've (probably badly!) searched the forums and struggling to find discussions on how much money i need to save for emergency fund.

I've been pretty obsessed with getting my savings pot up to £20k. Both husband and i were made redundant at the same time a year last Jan (we were doing the same role at the same company) and the utter panic i felt at the time hasn't truly left me 2 years on.  The reality was that i got a new job immediately and hubby 2 months later but i realise that we were extremely lucky, especially when it was the January that had mass tech layoffs.

The rule of thumb is 3-6 month expenses and more like 3 if you are a joint income household.
Our monthly expenses without any cutbacks = £4300 and with cutbacks if disaster struck = £3700.

I'm not sure how i arrived at the figure of £20k but it was possibly because it was a nice round number.   I'm at £18k now and i really want to start paying more into my pension and overpaying my mortgage.

At £18k:
If both us got made redundant/couldn't work the money would last 4.86 months.
If only 1 of us got made redundant/couldn't work the money would last 51.39 months.

So, i know it's probably enough and given that we will now not ever work at the same place as each other to avoid this situation in the future. 

I guess what i'd like is for some of you to play 'Mum' or 'Dad' and tell me that it's a good amount and that i have permission leave it as it is and start directing money elsewhere.  Please humour me as i have nobody in real life to advise :-)

NoMore

Its entirely up to you, what makes you feel comfortable to sleep at night.

For some that could be as little a month worth for others it could be 5+ years. Your in the 3 to 6 months range, so do you feel thats ok to you.

Martico

If you're thinking of starting to put at least some of your excess towards mortgage overpayments, then that can sit for a while in your emergency fund (I assume that interest rate is higher than your mortgage interest rate?), topping that up while you start to direct some of the excess towards your pension. As to how many months, I think that depends on your confidence in how long it would take you to find alternative employment if you were to lose your job again. 

El_Torro

I assume that you no longer both work at the same company? If so the likelihood is lower that you will both be made redundant at the same time. It can happen of course, but unlikely. 

On the face of it £20k sounds like a good figure for you. It's a balance between being financially safe and using your money to do something more productive. You mention over paying your mortgage and adding more to your pensions. Both are good uses for your money, though as you know an appropriately sized emergency fund is essential. 

So if you want me to be your Dad and tell you that £20k is a good amount then I'm happy to do that, based on what you have said

Eyeful

This is a how long is a piece of string question.
We all are different, ages, risk profiles, life situations, etc.
What is right for me, may be totally wrong for you.
My answer to money questions always boils down to this:
what makes sense to me, allows me to not worry & lets me sleep at night.

Flossymuldoo

NoMore said:

Its entirely up to you, what makes you feel comfortable to sleep at night.

For some that could be as little a month worth for others it could be 5+ years. Your in the 3 to 6 months range, so do you feel thats ok to you.

Yeah i get you.   I think i've been working on the assumption that we would both lose our jobs at the same time and realistically that's unlikely to happen.

 Eyeful said:

This is a how long is a piece of string question.
We all are different, ages, risk profiles, life situations, etc.
What is right for me, may be totally wrong for you.
My answer to money questions always boils down to this:
what makes sense to me, allows me to not worry & lets me sleep at night.

I think that question is the crux of it, but to be honest having more may not ease the worry.  I am never indecisive but i keep going around in circles on this.

Flossymuldoo

Martico said:

If you're thinking of starting to put at least some of your excess towards mortgage overpayments, then that can sit for a while in your emergency fund (I assume that interest rate is higher than your mortgage interest rate?), topping that up while you start to direct some of the excess towards your pension. As to how many months, I think that depends on your confidence in how long it would take you to find alternative employment if you were to lose your job again. 

Yes the savings is 0.51% higher than my mortgage so i could let it accumulate and i could pay anything over £20k towards my mortgage at the end of the year say.  That would mean that i've always got a higher amount in there.

Flossymuldoo

El_Torro said:

I assume that you no longer both work at the same company? If so the likelihood is lower that you will both be made redundant at the same time. It can happen of course, but unlikely. 

On the face of it £20k sounds like a good figure for you. It's a balance between being financially safe and using your money to do something more productive. You mention over paying your mortgage and adding more to your pensions. Both are good uses for your money, though as you know an appropriately sized emergency fund is essential. 

So if you want me to be your Dad and tell you that £20k is a good amount then I'm happy to do that, based on what you have said

No, we're not at he same company anymore and won't ever do that again!! 
I am not sure what figure would make me feel secure and i'm not sure whether a higher figure would ease my worries.  But you're right about it being a balance.  Paying more into my pension will be beneficial tax wise and i would really like to see the mortgage going down and i think both of those will also make me feel more secure.

Thanks anyway for advice Dad 

Emmia

I'd work on the emergency fund over mortgage overpayments and additional pension - the mortgage and pension ties money up which if you were made redundant you'd want to be able to access.

But once you've hit the £20k (or whatever) goal I'd go back to pensions / mortgage over payments 

Instead of tying it up with mortgage/pension I'd put some of the money into a high interest savings account/ISA with a notice period - keeping enough money as free cash /instant access (probably at a lower rate)to get you through a couple of months.

Alexland

Cash savings rates are currently attractive so there's no longer an opportunity cost to having a bigger emergency fund if it helps you sleep better at night provided you are not paying higher rate tax or missing employer pension matching to built it up in which case you might want to pace it a bit.

So if for example you would feel comfortable having a year of expenses in an emergency fund why not?

If you can save at a higher rate than your mortgage then there really is no need to overpay.

My plan is to repay the mortgage from my pension tax free lump sum as I can get the same or better returns with S&S investments (even low risk ones like UK treasury issued gilts) but turbo charged with tax efficient pension contributions. You may also find a S&S LISA is attractive depending on your age/circumstances. In some ways the S&S LISA acts as an additional layer of emergency fund for if I was to be out of work for years.

VNX

It’s all very individual but for me, 20k is a good emergency fun. Realistically more than you’ll ever need, enough so you never need to worry and as said above rates on instant access accounts currently at the top end are ok so no real need to lose out either