What’s the right level of savings?

[Gordon Gekko]

This issue comes up regularly. With negative interest rates starting to impact on more people and the view from some quarters that we’re going to see higher inflation, it’s a really important aspect of people’s overall planning.

Obviously it can depend on each individual’s own circumstances. But for ‘middle of the road’ cases, what should it look like?

My own sense, for what it’s worth, is that an ‘emergency fund’ should be equal to six months’ total expenditure. Some people might trim that back to six months’ essential expenditure, or three months’ total expenditure.

I think if someone has six months’ expenditure in cash or near-cash, is maximising their AVCs, and then focusses on overpaying their mortgage, they’re on the right track. For the reasons outlined in other threads, I don’t see the logic of investing outside a pension wrapper while carrying non-tracker debt.

Gordon

 

[Brendan Burgess]

Key Post - How much of an emergency fund do I need?

This comes up from time to time, and there is a custom and practice answer that everyone should have 6 months' expenditure in cash in case of some unforeseen expenditure. This is too simple an answer and it results in most people having way too much cash wasting away in a low interest deposit...

www.askaboutmoney.com

 

[Familyman77]

Our scenario would be very similar. We keep 6 months expenditure in CU. We then have approx 2 months income in bank account then for everyday use , holiday etc. Any surplus then is going as overpayments. What I find though is that when the bank account drops after an expense ( for example a recent 3k repair to the roof after storm ) we try to build the bank account back up as quick as possible buy not overpaying for that time period

 

[Steven Barrett]

This issue comes up regularly. With negative interest rates starting to impact on more people and the view from some quarters that we’re going to see higher inflation, it’s a really important aspect of people’s overall planning.

Obviously it can depend on each individual’s own circumstances. But for ‘middle of the road’ cases, what should it look like?

My own sense, for what it’s worth, is that an ‘emergency fund’ should be equal to six months’ total expenditure. Some people might trim that back to six months’ essential expenditure, or three months’ total expenditure.

I think if someone has six months’ expenditure in cash or near-cash, is maximising their AVCs, and then focusses on overpaying their mortgage, they’re on the right track. For the reasons outlined in other threads, I don’t see the logic of investing outside a pension wrapper while carrying non-tracker debt.

Gordon

It depends.

How stable is your job? A public servant will need less than someone in a less stable job. But then the "emergency" is quite often an unknown event and not job loss, so what rule of thumb do you need for that?

It also requires some thinking about. What known expenses do you have coming up in the next 5-10 years? Are you going to borrow to pay for it e.g. a new car or do you want to pay in cash? Education is another big expense. Do you want your children to go to private school? How are you going to pay for that? Most parents want their children to go the university so that is another expense, and a big one if you also have to pay for accommodation for them. Putting the money into your mortgage won't be much use to you if you are still paying it off when these bills come due?


Steven
www.bluewaterfp.ie