I’ve mentioned how much I enjoy the book Love Is Not Enough: A Smart Woman’s Guide to Making (& Keeping) Money. One part of the book in-particular resonated with me; the author stated that having a substantial emergency fund gives you freedom, it allows you to cope with job loss, move, leave a bad situation etc. I’ve know too many women stuck in terrible situations simply because they didn’t have the funds to get out, whether that be a bad relationship or workplace environment.
For me, I’d like a cushion, a backing that I don’t touch for day to day situations but is there if I needed it. My version of “needing it” is job loss, illness, bad situation, if I had to move etc. I’ve thought long and hard about what the magic number is and I’ve set myself a goal of £10,000 which is just shy of $20,000. This will be kept in a safe, easily accessible account, but I’d like to “forget about it” in the sense that it isn’t part of my savings for holidays or a house or car repairs etc. It’s earmarked for the mega emergencies that arise.
As I read more and more personal finance blogs and see people’s emergency funds depleted due to dentist visits, car repairs, money owed in taxes etc, I’ve also decided I’d like a mini emergency fund which would cover the more minor emergencies that arise. I’d like to get this to approximately £1000, once I’m reliant on a car again or am a homeowner (and therefore leave London!) I’d like it to get to £2,500.This account I’d like tied to my current account so that transferring money is easy. I also plan to have a cheque book for this account so that emergency day to day expenses can easily be paid.
I don’t think £10,000 is the right number for everyone, so much depends on the costs of living where you live. I have a friend in the US who can live for $1000 a month as his rent is low. Realistically here in the South East a pretty realistic figure based on average rent is £1300-£1500 a month, that’s a big difference. Dave Ramsay and other financial experts have mentioned that single people need a good emergency fund as they are completely reliant on one income, they can’t “muddle through” when they go down to one income (because for us job loss = no money), it is harder for them to get out of debt because they can’t put a whole salary to debt repayment etc. This has really made me think about the future. Right now, as a single with no dependents £10,000 seems a good cushion, in the future I may feel more comfortable with £15,000 to £20,000. Ideally I’d like to know I could go a year with no income.
I don’t keep my emergency fund in an ISA, I’ll blog more about my ISA plan when I do a post on my retirement plans. I keep my emergency fund in an ethical savings account that I can access electronically and through branches nationwide.
So where am I now? I currently have £2000 in the emergency fund and another £618 to go in next week. I have also set a goal to put £1000 into my emergency fund by the end of the month. Once I opened up an account earmarked as my emergency fund, saving became so much easier as I started to see it as paying myself. I hope to make my £10,000 emergency fund goal by May 1st which would be the one year anniversary of my new job and seems like a pretty realistic time frame. I may not have a large sum in my account right now, but I’m amazed at the financial peace it has already brought me.
Do you have an emergency fund? How much money in an emergency fund is the right amount for you and how did you make that decision?
I hadn’t come across this book and it sounds interesting – thanks for the heads up!
I am very impressed with your emergency fund saving, btw.
looks like a great book! i am going to go see if i can find it on paperbackswap.com.
i am really into reading finance books these days. glad to hear the veganism is still going strong!
You really do have your head screwed on. Being as £10,000 is not far shy of my yearly income, that’d be way too big a goal for me, but then I don’t have £1,000+ a month in rent either (far from it). Right now I’d be happy with £3,000 in an emergency fund and my debts paid off.
I do know what you mean by the necessity of a realistic fund though. I was once in a very bad relationship where an emergency fund would have been very useful to have. In fact, I think I may well blog about that experience as it could be something for others to think about.
I am such a fan of the EF. I will admit that in rough times, I have family I can fall back on. But I don’t want to do that in minor or moderate emergencies you know? Only the really serious ones (like disability, can’t work again, etc).
I think a 6 months fund is good for the immediate. I think, generally speaking, one can find employment within 6 months. Beyond that, the problem becomes one of not being able to work, I think, and there is disability to fall on.
I am also creating my “go to hell” account, courtesy of Brip Blap, I believe. That’s for when you still have a job, but you feel like quitting and doing your own thing.
I’d love to have that much, but I’m still renting and paying off debt, it’s definitely something to have if you’ve got a mortgage.
My magic number is $10,000, but I don’t plan on stopping there once I get to my goal. I would love to have 1 year’s salary saved too…
A part of my EF is in CDs, with $500 due each month. I also have some pretty liquid funds that I can access within a day and my CCs if absolutely necessary (then I could pay myself back).
You’re already doing so great!! I’m look forward to reading about your progress
Hey,
I nominated you for an award, just because reading yours helps keep me on the straight and narrow when temptation (like shoes) makes me weaken.
Hi there-I think I mentioned before I have £500 in premium bonds-not an awful lot, but with a family of 2 kids to support and a mortgage, bills, debt,etc to pay every month this is how it is for me until I’m out of personal debt. I’m just pleased I’m sticking to my monthly budget!!
Miss Thrifty, I think you’ll love the book!
Thanks!
neiman, great idea and yes veganism is still in full swing!!
Sharon J that sounds like a really reasonable amount!
I have quite a substantial amount of money in various ISAs, premium bonds, building society accounts. In a sense it is all my ‘emergency fund’ because you just never know what life will throw at you and I feel it safer to have as much money ‘squirreled’ away as possible for coping with the unexpected.
Ooh Deepali I need a go to hell fund too….hmm….something that would let me take off to India or Mongolia for a few months or year!!
Man that makes me even more motivated!!!!
LOVE IT!
Thanks Mary, I’ll check it out later today!
Debt Dieter, Sharon rose and Candian saver, it really shows how how everyone has a different comfort level based on their situation and that’s really what’s important!
Elizabeth, there’s a lot of wisdom in that thinking!!
I actually wonder if *not* having a mortgage makes it easier to have an EF…
I did wonder that Deepali but I pay more rent than I did on a mortgage and yet pay into an emergency fund despite having less left after bills etc.
Go to hell fund sounds fab – we need one of those too!
I just checked out that book from the library yesterday after your recommendation and enjoyed what bits I read last night. I really like the idea of a mini emergency fund and a larger EF for emergencies like redundancy. Be good to keep things seperate. Atm we have nothing, but I have plans!
Great post. “Spot on” as you Brits say! I think I need to rethink my Emergency goal plan, I call mine a “contigency fund” as it’s more along the go-to-hell lines and would most likely be my decision to leave the corporate world. Oh, that day will be sweet…
Another book I’d recomend is the Tightwad Gazette. they can be bought pretty cheaply used (mine was 3€ plus another 3€ for shipping) money well spent.
The real genius lies not in her money saving tips but in how she views money. I’m only part way throught but it’s already transformed my thinking about money
Also I gave you a plug over at GRS comment # 86
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K2B2 I hope you enjoy it! Glad a go to hell fund sounds good for you too!
Saving not Shoes – go luck with your very own go to hell fund ;0)
Rob – I have the book, I agree many of the tips won’t work here but it is the attitude to money that is good!
Thanks for the mention!!
I think you’re the only other person I’ve ever seen decide to have a mini e-fund as well! I had a sneaking suspicion people thought it was silly to have a main emergency fund (untouchable except for the really big things) and then a smaller e-fund for all those other things that are unexpected.
Thanks for your article on emergency fund. I’m a new blogger and saw your article reference at the bottom of one of my posts! It’s always great to read other’s stuff on personal finance. Emergency funds are “must have” if someone is going to succeed financially. Feel free to stop by and check out my blog: kbgunman.wordpress.com
Ken