#EmergencyFund #PersonalFinance #FinancialPlanning
🚨 Does anyone else find the idea of a 12-month emergency fund completely unrealistic? 💸💭
I recently calculated that my wife and I would need £40k to cover a year’s worth of essential expenses in case of job loss. Currently, we are £30k short of that goal. 😳
Here are some thoughts and questions on the topic:
– Is it practical to have such a large emergency fund?
– How do you determine the right amount to save for emergencies?
Personally, I feel a bit overwhelmed by the idea of sitting on that much cash. However, I understand the importance of being prepared for the unexpected.
One possible solution that I’m considering is to:
– Continuously build up our emergency fund gradually over time
– Reevaluate our expenses and see if there are areas where we can cut back
– Look into additional sources of income to supplement our savings
What are your thoughts on this? How do you approach building and maintaining your emergency fund? Let’s share ideas and support each other in our financial journeys! 💡💰
I try to keep an 18 month emergency fund in case I get seriously injured and become unable to work or become very unwell.
That said I’m single, live alone and have been nc from all ancestors for many years.
I currently have a one month emergency fund, funds earmarked for a holiday, savings for a new car, and savings for a deposit on my next home.
If I lost my job tomorrow all those goals would get postponed, and it would all just become an emergency fund instead.
No. 12 months in a huge emergency fund to be holding in cash. Not sure where you’ve even got that idea from. 3 to 6 months is plenty for most people.
I am firmly of the belief that available credit is a perfectly fine emergency fund. Keep a month or two in cash if you want, but credit cards are good enough to cover the rest as long as you’re aware of the long term problems should a period of unemployment go on for too long.
Keep your credit cards open and use them now and then and you’ll get balance increases that you won’t know what to do with. I’ve got £55k available across 6 cards.
I too have the same outgoings as you and am about to move house. I’m going to keep 10k back as my ‘emergency fund’ – should cover circa 3 months if me and my partner both lose our jobs at the same time. My job is v stable (fingers crossed).
I have money in my S&S ISA and if worse came to worst I’d draw down from that. I am not particularly saving for anything in that ISA for now as pension is defined benefit. If I was to lose my job, I’d go out and work anything to ensure I had money coming in whilst I found something longer term.
£40k isn’t that much considering your circumstances. You have large responsibilities and high outgoings. If £40k seems unrealistic I would consider critical illness cover etc.
I work in financial services for a large ISA and pension provider, my company would give the guidance to have an emergency fund of 3-6 months expenditure. 12 months is great, but you might want to consider what you might be giving up, like additional pension contributions, insurance, paying off the mortgage or other investments. Or even just enjoying yourself.
Rethink if 12 months is necessary, especially if you have other savings/investments. It might not be.
Extend your mortgage duration and put the delta in a savings account.
I do have over 12 months but only because of recent redundancy. I got 12 months pay in my redundancy package (£30k of that was tax free), plus left over annual leave, my 10% bonus & I was paid in lieu of working. Took 4 months to get a new job, so I ate into it but I just cut all spending. Rather than living off £2400 a month, I cut that to £1700. That was largely my half of the bills with some spends. It was tough but it stopped me wasting money.
Chances are you have a few things – it’s unlikely you will both lose your job at the same time. So that £3.3k monthly for one of you is more like half that! You will most likely find another job within 6 months, if not sooner. And you are probably entitled to some redundancy payout of some kind!
My wife and I only have £10k saved right now (back end of maternity leave) and our monthly expenses are about £5.5k. Jobs are quite stable though. I guess family would help us out if needed. Could also sell things (like one of our cars) if really desperate.
I have a payment protection plan from an insurer. Under most circumstances if I were to be out of work long term it would pay out. I also put some money into savings each month. I wish I had been serious about saving when I was in my 20s and 30s.
Lots of the personal finance community is overly dogmatic on this subject. It’s the broad principles that matter, not the detail. The point of an emergency fund is so that you can keep your head above water in the event of a few setbacks, instead of being drowned.
I don’t keep anything like 12 months of essential expenses in cash-like accounts. That’d be way too much cash drag.
TBH – we made a ‘maternity fund’ which let my wife take longer off work (by covering more household expenses) which might be more useful if you’ve already got £10K emergency money.
I don’t keep more than £10k in cash. But I have more than 12 months of expenses invested in a S&S ISA, which is liquid enough if I ever need it in an emergency.
Having a years worth of expenses saved means I can add a 12 month deferred period to my income protection insurance and save a significant amount of money, but with complete piece of mind.
I have steadily reduced my emergency fund over the last 5 years down to about 6 weeks outgoings, but have about five or six years years outgoings in longer term savings. If you have significantly more in longer term savings that could be accessed within a week or two the opportunity cost is too great in my mind to keep 12 months worth in instant access cash. Especially if you have cheap access to short term credit should you need it.
Add your contractual notice pay to your emergency fund, plus any realistic redundancy pay. You’ll get this other than in the event of gross misconduct. Also maybe incapacitation, but you’d have a period of sick pay first.
If your net is £5k and you have three months notice, then that’s £15k. Plus any redundancy. Any performance termination will be following a PIP.
Caveated that you’ve been with your employer for at least two years (for redundancy and PIP warning), and isn’t at risk of bankruptcy.
Not quite as good as a liquid cash emergency fund, but something to consider in addition to your £10k fund.
Why do you need a 12 month fund? Truthfully emergency fund is kind of for beginners anyway. Sitting on lots of uninvested cash is inefficient.
If your wife is pregnant and your expenses are 3.3k a month ,would you afford for her to stay home for a few months if she doesn’t have any extra company pay?
Because if your expenses are over 3 grand a month I just assume your income is pretty high too (at least 50k a year) so if you don’t have any other big investments I think the savings are pretty low for a high income.
I’ve always considered available credit as part of it. While obviously it’s not my money there is another 8k I can get to at any point for a serious emergency.
12 months is extreme, I have an emergency fund of 8 months, and only the barebones. Mortgage, bills, food. Nothing else.
For context I had an internal transfer that messed up payroll, it took them 4 months to fix. They could have done emergency payroll, but because I didn’t have to it kept things simpler.
Generally you want to have 12 months you can get to, but you only need 3 to 6 months in cash. So you are a bit short, particularly with a baby on the way and relatively high expenses.
>Do people really just sit on £40k in case you both lose your jobs? I feel a little deflated tbh.
It doesn’t have to directly be cash but can be cash equivalents. It’s just needs to be accessible.
https://ukpersonal.finance/emergency-fund/
12 months is at the top end of the scale and no I don’t think most people have that necessarily.
However it also gets a bit wibbly once you have other savings. If someone hypothetically had a £10k cash emergency fund but also £100k in their ISA, they’re not really going to have a problem in an emergency. That’s very different to having a £10k emergency fund and no other savings.