Whats your Safety Net Number?

Daveinlincoln · 12 June 2019 at 10:31AM

Its great to be able to pay off the mortgage early if we can and its what everyone on here wants....but before we start lumping off wedges of our mortgage it makes sense to have some money in the bank as a reserve in case things go belly up....nothing new in that.

But it got me to wondering....what is your "Comfort wedge Number"?

How much do you want/need to have in reserve before you start making overpayments on your mortgage?

I'm new to this paying off early lark but once started it becomes obsessive doesn't it !

I have money in reserve but i'm starting to think if my amount is wrong?

My number is £20k...I work in a very up/down commission only self employed job and in 53 so things can go wrong quickly so therefore I like/want to have good money behind to tide me over if things do get rough...but is this number too high?

Would 10 or 15 be enough? and therefore I can pay more off the mortgage?

What's your opinion and what's your number?

pramsay13 · 12 June 2019 at 10:39AM

That seems really high to me.
For me it is around £5000 as there are safeguards in place should other things happen.
This £5000 is what I would need for one-off bigger purchases in the house, e.g. new boiler or windows.
Plus if you overpay and reduce monthly repayments you will have extra cash to start building up reserve again.

getmore4less · 12 June 2019 at 12:36PM

The emergency fund is just to cover unknown expenses, the key fund is the disaster fund loss of income.

Review all income sources asses the risk of them not producing and an estimate of the time to replace then add margin.

Also look at your expenses and debt levels, that includes contracts as they are similar to a debt when you have no money.

eg A £50pm sky package on a 12 month contact is £600 debt that still needs paying if you have no income.

You seem to have two main risks,

reduced commissions that go below your spending

Loss of job.

A key factor is how quick you can wind down your expenses or vary them on the reduced income scenario.

Then how quick can you restore a fund.

Then the is how long do poor commissions tend to last and how long typically to get another job.

Plucking £20k out of the air needs to be in context.

Since reduced income could be followed by no income you can't share the money.

I would want X months of expenses based on no income and Y months of extra to cover a down turn

for me X would be 6 months min and Y 3 months min
If the job is not picking up after 3 months, time to get looking for a better job)

X longer if the job market was difficult any over 3 month to get a job add a month of expenses per month.

If during the 3 months of lower wages you could wind down your expenses to preserve cash then the amount needed would be lower that if you have a load of contracts that need servicing and cannot be changed.

NorthernMonkey1 · 12 June 2019 at 1:37PM

I would disagree that an emergency fund is to cover only unexpected expenses. Unexpected expenses for me go on the credit card, and are paid off in full next month.

I'd work on a multiple of your essential expenses, dependent on how quickly you think you can get a new job. If you think you can easily get a new job, then 3x monthly expenses, if its a bit more tricky, then 6x.

If your expenses are £3-4k per month, then £20k isn't unreasonable, although on the high side. Its potentially costing you £600 a year in increased interest on your mortgage to hold that much in low interest cash accounts (assuming 3% interest on your mortgage)

always_sunny · 12 June 2019 at 1:51PM

I am going through the same exercise and it's difficult, I usually keep around 4 months expenses liquid just in case though being around London finding a new role is usually fairly quick and if I slow down my expenses, those 4 months could easily last me 6-8... I think 3 is good, it is just mentally difficult to let go!

LeighofMar · 12 June 2019 at 8:40PM

10k is the minimum I'm comfortable with. We experienced the recession firsthand with a construction business so I know how fast it can disappear. 10k minimum and I dont really have a cap. I would be happy with 20 or 25k honestly.

fresh_cotton · 12 June 2019 at 9:39PM

my partner and I have always had safe jobs and I have always ensured that we could easily survive on one salary if needs me. So there have been times when I have only had about £1000 in savings and didn't feel vulnerable. But I don't think that's good advice. I'm sure its better to have a bit more put away

getmore4less · 12 June 2019 at 9:51PM

NorthernMonkey1 wrote: »

I would disagree that an emergency fund is to cover only unexpected expenses. Unexpected expenses for me go on the credit card, and are paid off in full next month.
....

That only work if you have enough surplus income to cover them in one credit card cycle.

A proper budget will have contingency for events that are predictable but unknown timings and for stuff you just forgot to put in the budget.

getmore4less · 12 June 2019 at 9:59PM

fresh_cotton wrote: »

my partner and I have always had safe jobs and I have always ensured that we could easily survive on one salary if needs me. So there have been times when I have only had about £1000 in savings and didn't feel vulnerable. But I don't think that's good advice. I'm sure its better to have a bit more put away

Multiple income sources change the risk profile generally easing the requirements.

The risk profile also changes dramatically when one source goes.

But don't forget the systematic risk of same workplace or industry.

Whats your Safety Net Number?

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