Emergency funds.. How much is enough
Discussion
So yes, it is very un-powerfully built director but some of us less well built directors need to keep some of our cash because of the uncertainty! The question is "How much is enough of a cushion", which is what I would like some input on. As it stands I have two lots of income, a day job and a micro-business on the side.
At day job we have been told no redundancies whilst all this (CV19) is going on. However, building up a cushion is still a good idea because what about post CV19! I'd like peoples input.
As it stands I have already have six months of *expenses* (not wages) on hand in a bank account. With the government sponsored three month mortgage holiday I could make that seven months. My micro-business will also have put another 2 months in by end of year.
Therefore, at this point we are one years expenses, should the worst happen. Because my employer is a big financial company, any redundancy would be at worst case, another 18 months in terms of additional months of expenses (Assuming absolute worst case scenario on redundancy pay).
Therefore, in absolute worst case scenario, I can keep going for two and a bit years with no additional income. I am worried that it may not be enough but then again, its a lot of money to just be sat there. I am not saying about investing it or anything, just trying to prepare for the worst and hoping for best. I should add that my only debts are a small loan and small credit card and mortgage. My company has no debt and enough liquidty to see out the current climate.
I suspect many will say that is absolutely spot on with current situation but I just get a little paranoid, having been let go in 2008!
At day job we have been told no redundancies whilst all this (CV19) is going on. However, building up a cushion is still a good idea because what about post CV19! I'd like peoples input.
As it stands I have already have six months of *expenses* (not wages) on hand in a bank account. With the government sponsored three month mortgage holiday I could make that seven months. My micro-business will also have put another 2 months in by end of year.
Therefore, at this point we are one years expenses, should the worst happen. Because my employer is a big financial company, any redundancy would be at worst case, another 18 months in terms of additional months of expenses (Assuming absolute worst case scenario on redundancy pay).
Therefore, in absolute worst case scenario, I can keep going for two and a bit years with no additional income. I am worried that it may not be enough but then again, its a lot of money to just be sat there. I am not saying about investing it or anything, just trying to prepare for the worst and hoping for best. I should add that my only debts are a small loan and small credit card and mortgage. My company has no debt and enough liquidty to see out the current climate.
I suspect many will say that is absolutely spot on with current situation but I just get a little paranoid, having been let go in 2008!
Edited by anonymous-user on Tuesday 7th April 13:25
Having enough cash available to deal with an unexpected emergency is in my opinion sensible and certainly reassuring. That sort of lump sum would also cover months of our fixed costs. Inflation and the rate of return available on low-risk assets are both bugger all at the moment, so not squeezing the last drop of return out of one's assets is no big deal.
Sounds like the OP is in a good position, and probably a much better position than most.
Sounds like the OP is in a good position, and probably a much better position than most.
Interesting question
I thought I had 2+ years, in a combination of cash (bank), shares, cars owned outright and notice period from work.
However, with an event like Coronavirus it is possible to face the possibility that
Shares collapse in value, cars are unsellable and the employee goes bust so no redundancy payment.
3 years cover could become 6 months.
I thought I had 2+ years, in a combination of cash (bank), shares, cars owned outright and notice period from work.
However, with an event like Coronavirus it is possible to face the possibility that
Shares collapse in value, cars are unsellable and the employee goes bust so no redundancy payment.
3 years cover could become 6 months.
p1stonhead said:
Two years of cash sitting doing nothing but waiting for a (very?!) rainy day? Two years!
Way too much IMO.
I’ve only ever had about 3-4 months of actual cash sitting about. The rest invested.
Depends what you mean by invested.Way too much IMO.
I’ve only ever had about 3-4 months of actual cash sitting about. The rest invested.
If you think the OP is way over the top then not going to like what I have. About 18 months in straight cash / instant availability. Another 4 years worth in investments that could be realised without having to take much, if any, pain. To be fair the part that's in equities has taken a bit of a hit recently so not included. Other stuff which would involve longer term realisation of assets also excluded.
Personally reckon OP is about OK, always worked on ready accessible savings at about 9 months of expenses minimum.
I don't know if there's a right answer to as to how much is enough.
For a start be thankful (and I know you are I'm just saying it
) to be where you are because right now a lot of people have f
k all saved up and I'm sure you know it's a very nice first world problem to only have a years worth of outgoings put aside.
I'm guilty of this myself but it does help with worrying too much over short term events.
Maybe consider some cautious but hopefully "better than cash" funds or trusts if you want to take some cautious risk with your longer-term cash savings but be reasonably confident that most of it will be there should you need it in a pickle.
For a start be thankful (and I know you are I'm just saying it
) to be where you are because right now a lot of people have fk all saved up and I'm sure you know it's a very nice first world problem to only have a years worth of outgoings put aside.I'm guilty of this myself but it does help with worrying too much over short term events.
Maybe consider some cautious but hopefully "better than cash" funds or trusts if you want to take some cautious risk with your longer-term cash savings but be reasonably confident that most of it will be there should you need it in a pickle.
I guess this depends on your individual circumstances and expenses but 6 months "expenses" would be decent. 6 months "take-home" salary worth would be a nice-to-have but not sure how realistic that is for many people.
Personally it's tricky for me to define my emergency fund as most of my cash is earmarked as going towards a property deposit so who knows.
I have a v small amount invested in a equities tracker too that could in theory be sold to yield some cash but for the purposes of a liquid cash buffer won't include that and definately not keen to sell at the current -20%!
I also learnt the hard way through a few periods of unemployment post global FC where I was fortunate that my overheads at the time were relatively low but it could happen again when we least expect it so a rainy day /emergency fund of at least 3 months worth of expenses seems a sensible and measured minimum buffer.
Personally it's tricky for me to define my emergency fund as most of my cash is earmarked as going towards a property deposit so who knows.
I have a v small amount invested in a equities tracker too that could in theory be sold to yield some cash but for the purposes of a liquid cash buffer won't include that and definately not keen to sell at the current -20%!
I also learnt the hard way through a few periods of unemployment post global FC where I was fortunate that my overheads at the time were relatively low but it could happen again when we least expect it so a rainy day /emergency fund of at least 3 months worth of expenses seems a sensible and measured minimum buffer.
Edited by VR99 on Tuesday 7th April 16:51
Edited by VR99 on Tuesday 7th April 16:51
My job seems secure.
Ive been here a reasonable time (5 years) and my notice period is 2 months (could save alot in that time if i had to).
I have a months expenses in cash and another 5 months (at todays prices) in investments, which id sell at whatever price they were on the day.
Im relatively young (27) and i could keep 6 months of expenses in easy access for the next 40 years and never need them. My parents have never been made redundant and neither were my granparents. I dont plan to be the first.
I have my monthly expenses down to a minimum aswell, so job seekers and other benefits would cover a fair bit more than it would for most people, which also means i wouldnt need to be fussy about taking a well paid job.
But i appreciate my apetite for risk is alot higher than the average person.
Ive been here a reasonable time (5 years) and my notice period is 2 months (could save alot in that time if i had to).
I have a months expenses in cash and another 5 months (at todays prices) in investments, which id sell at whatever price they were on the day.
Im relatively young (27) and i could keep 6 months of expenses in easy access for the next 40 years and never need them. My parents have never been made redundant and neither were my granparents. I dont plan to be the first.
I have my monthly expenses down to a minimum aswell, so job seekers and other benefits would cover a fair bit more than it would for most people, which also means i wouldnt need to be fussy about taking a well paid job.
But i appreciate my apetite for risk is alot higher than the average person.
Benbay001 said:
My parents have never been made redundant and neither were my granparents. I dont plan to be the first.
The only way to guarantee that is to work for yourself. More often than not the first consideration is just getting cost out, so even if you're a good employee it might count for nothing. I've often looked at lists of people up for the cut and thought about the shame of the short-termism of it all. My view is that if you have skill and a good reputation you're probably looking at 2-3 months without income in most circumstances. Having 3 months take-home pay in an accessible account probably equates to 5ish months cover if you cut your most frivolous expenses as soon as your situation changes. That buys you enough time to sensibly liquidate other assets (cars/toys/investments) if you need them.
I don't live a highly leveraged lifestyle though. But anyone who does is unlikely to be putting cash aside for a rainy day anyway!
6 months of living expenses feels like a minimum buffer to me to feel comfortable. Would hope I wouldn't need that long but should cover a lot of eventualities.
Currently beyond that (approx 10months saved) having built the pot back up after house purchase 3 years ago and pre-pandemic was starting to feel like additional saving was an 'excess' sitting in the bank that would be better placed elsewhere.
Knowing where to stick extra cash under the current circumstances though is rather hard to judge so will probably (rightly or wrongly) just carry on sticking it in the bank for now. Unless anyone has any better ideas....!
Currently beyond that (approx 10months saved) having built the pot back up after house purchase 3 years ago and pre-pandemic was starting to feel like additional saving was an 'excess' sitting in the bank that would be better placed elsewhere.
Knowing where to stick extra cash under the current circumstances though is rather hard to judge so will probably (rightly or wrongly) just carry on sticking it in the bank for now. Unless anyone has any better ideas....!
T1547 said:
Knowing where to stick extra cash under the current circumstances though is rather hard to judge so will probably (rightly or wrongly) just carry on sticking it in the bank for now. Unless anyone has any better ideas....!
I put my emergency cash in premium bonds, interest rates are virtually nothing on bank accounts anyway so why not put it where you could win a million (though you won’t)? If the worst comes to the worst you can get the money out quickly.greygoose said:
T1547 said:
Knowing where to stick extra cash under the current circumstances though is rather hard to judge so will probably (rightly or wrongly) just carry on sticking it in the bank for now. Unless anyone has any better ideas....!
I put my emergency cash in premium bonds, interest rates are virtually nothing on bank accounts anyway so why not put it where you could win a million (though you won’t)? If the worst comes to the worst you can get the money out quickly.Wilmslowboy said:
Interesting question
I thought I had 2+ years, in a combination of cash (bank), shares, cars owned outright and notice period from work.
However, with an event like Coronavirus it is possible to face the possibility that
Shares collapse in value, cars are unsellable and the employee goes bust so no redundancy payment.
3 years cover could become 6 months.
If employer goes bust there is a government scheme that pays the redundancy due + a few extras. I thought I had 2+ years, in a combination of cash (bank), shares, cars owned outright and notice period from work.
However, with an event like Coronavirus it is possible to face the possibility that
Shares collapse in value, cars are unsellable and the employee goes bust so no redundancy payment.
3 years cover could become 6 months.
Question to the more seasoned investors and it's slightly on a tangent from the op's thread so apologies but since VLS has been mentioned a few times:
Would or have you ever used your S&S ISA's and whatever funds/trackers you invest in to take advantage of shorter term market movements? By that I mean for example you invest X amount in a fund then sell 6-8 months later or maybe you topslice it to lock in some gains. I accept this means you lose part of the ISA allowance once you remove cash and this goes completely against the often quoted mantras for investing e.g: long-term view, appropriate risk tolerance but just curious given what's been happening in the markets and with the current situation.
This is specifically referring to funds or trackers only, not actual shares in listed firms etc
Would or have you ever used your S&S ISA's and whatever funds/trackers you invest in to take advantage of shorter term market movements? By that I mean for example you invest X amount in a fund then sell 6-8 months later or maybe you topslice it to lock in some gains. I accept this means you lose part of the ISA allowance once you remove cash and this goes completely against the often quoted mantras for investing e.g: long-term view, appropriate risk tolerance but just curious given what's been happening in the markets and with the current situation.
This is specifically referring to funds or trackers only, not actual shares in listed firms etc
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