How much money do you have in emergency savings?
Every personal finance site suggests a different amount of savings for an emergency savings account. Some sites say enough to cover 6 months of expenses and some say up to 8 months. Is there a point of saving too much in that particular savings? Thanks in advance.
It all depends on how big an emergency you are likely to get.
I work a full time job. I also work a casual weekend job. If I lost one of the jobs, I’d still probably have the other one. This is an important part of managing an emergency. Both my jobs are minimum wage jobs.
I have two grand sitting aside for emergencies that can be accessed within 24 hours.
We also have our house paid off, but have access to a massive amount of money in the redraw facility on our loan, because we have not closed the account. I count this as part of our emergency savings. It also means that any emergency savings we DO have will go further because accomodation is no longer an expense.
Don’t focus on what books and sites tell you you need. Look at your individual situation and work out what is a good amount for you. I have money invested. I can draw upon it in an emergency, but it would have to be one hell of an emergency. But if my car blew up tomorrow, or the fridge stopped working, or I lost my job, we’d be all right until I found work again. Look at your situation and work out how much you’d need if you lost your job for six months. What can you do about your lifestyle to reduce the amount of money you need to maintain it? For us, it was paying our house off as fast as possible. It saved us a shiteload in interest, but it also means that we don’t need to pay rent. We minimized our debt, grow our own vegies, drive older cars, and live as cheaply as possible. If something bad happened, like one of us was out of work, we’d get a boarder into our home to cut the expenses.
You don’t want too much in emergency savings. You want enough to cover an initial emergency, and then some surplus money which is easily accessible, but is invested so that it earns you more money. For example, you could have a few grand in a bank account earning decent interest, and then have maybe ten grand sitting in a mutual or managed fund that you can access if you realise that your emergency is bigger than expected.
You need to work out what is right for you, and then do it. But don’t put too much of your money into a bank account when it could be earning you more money elsewhere. Have a little to cover disasters, and put the surplus somewhere else where it can work for you, because NOT having a disaster, but having your money only earning 3% per annum, which is just barely ahead of inflation, would also be a disaster.
Emergency savings is what you never, ever touch, except for emergencies. Some experts recommend a full year’s worth of living expenses. These last few years, some people lost their jobs and were unemployed for 2 – 3 years. Some are still unemployed. Six months wouldn’t have gotten them far.
I had a year’s worth, was unemployed for just under two years, but unemployment helped get me through it. Then again, I had unexpected car and medical expenses (thousands of dollars for each), so a lot of my savings got used up for those things.
Now, I just have a pot. It all goes in the pot. I guess I wouldn’t let the pot go below a year’s worth of income, so you could say that’s my emergency savings.
References :
It all depends on how big an emergency you are likely to get.
I work a full time job. I also work a casual weekend job. If I lost one of the jobs, I’d still probably have the other one. This is an important part of managing an emergency. Both my jobs are minimum wage jobs.
I have two grand sitting aside for emergencies that can be accessed within 24 hours.
We also have our house paid off, but have access to a massive amount of money in the redraw facility on our loan, because we have not closed the account. I count this as part of our emergency savings. It also means that any emergency savings we DO have will go further because accomodation is no longer an expense.
Don’t focus on what books and sites tell you you need. Look at your individual situation and work out what is a good amount for you. I have money invested. I can draw upon it in an emergency, but it would have to be one hell of an emergency. But if my car blew up tomorrow, or the fridge stopped working, or I lost my job, we’d be all right until I found work again. Look at your situation and work out how much you’d need if you lost your job for six months. What can you do about your lifestyle to reduce the amount of money you need to maintain it? For us, it was paying our house off as fast as possible. It saved us a shiteload in interest, but it also means that we don’t need to pay rent. We minimized our debt, grow our own vegies, drive older cars, and live as cheaply as possible. If something bad happened, like one of us was out of work, we’d get a boarder into our home to cut the expenses.
You don’t want too much in emergency savings. You want enough to cover an initial emergency, and then some surplus money which is easily accessible, but is invested so that it earns you more money. For example, you could have a few grand in a bank account earning decent interest, and then have maybe ten grand sitting in a mutual or managed fund that you can access if you realise that your emergency is bigger than expected.
You need to work out what is right for you, and then do it. But don’t put too much of your money into a bank account when it could be earning you more money elsewhere. Have a little to cover disasters, and put the surplus somewhere else where it can work for you, because NOT having a disaster, but having your money only earning 3% per annum, which is just barely ahead of inflation, would also be a disaster.
References :