|12-12-2011, 11:14 PM||#1 (permalink)|
Join Date: Nov 2010
Rainy Day Fund Size
I have been setting aside a small amount of $ each month for a rainy day fund. It's all going into a government-backed, but low-interest account.
Is there a rule of thumb as to how much I should have in there in terms of monthly expenses? I've gotten a lot of contradictory advice.
The fund I'm creating will be used in case I, say, get hit by a car and can't work, or someone breaks into my apartment and steals a lot of valuables, etc.
|12-12-2011, 11:35 PM||#2 (permalink)|
Join Date: Feb 2009
Depends on what makes you feel comfortable!
I guess you could look at your insurances (if you have 'ill-health' cover of some sort), what social security you might be able to get and at what point, and at what help parents or others may be able to provide for you if you really hit the bottom.
This might give you a better idea.
Also, depends on whether you mean 'salary' or actual 'expenses' - figure out exactly what you NEED (taking into account if you are laid up you may not need gas for the car, but you would probably be spending more at home on heating and electricity and so on).
Some would say 1 month, others 3 months and others 6 months.
Also, what is the lead time in your work between doing work and getting paid.
Say you are laid up for 2 months.
Then you do some work - how long would it be before you see your first invoice paid?
Personally, my view is get 1 month expenses down as quickly as possible and then build up to 6 months over time.
|12-13-2011, 02:00 AM||#4 (permalink)|
Join Date: Nov 2006
2. Getting hit by a car leads to medical expenses which is something you should seek to cover by insurance, not savings.
3. In general, personal financial planning does not cater to theft scenarios. I would suggest a good padlock, perhaps a CCTV, a burglar alarm system etc.
|12-13-2011, 06:55 AM||#6 (permalink)|
Join Date: May 2009
I vote 6 months of average living expenses -- rent, water, electricity, food. Once you have that filled up... I used to think like Mounds, because who knows when you might be between jobs for more than six months? Or inflation gets really extreme? If a rainy day never comes, you could direct those funds to your retirement!
...But, well, there are often more valuable things than money (that somehow still cost money,) so I think 6 months of living expenses can be cue enough to worry less about it.
|12-15-2011, 02:44 AM||#7 (permalink)|
Join Date: Jan 2010
Location: Pennsylvania, US
Depends on numerous factors. In addition to the ones you listed are things like a) to what extent you want to build wealth, b) how concerned you are with financial security, and c) what other kinds of funds you have besides pure cash.
I'd say more is better; I prefer 6 months of cash available. Any more than that, and I'd suggest putting that money to a lot better work: bonds, stocks, business ideas, real estate, etc.
I've got around 4 months of cash handy, but in terms of liquid assets, I could easily go many years without any external income.
|12-19-2011, 05:05 PM||#10 (permalink)|
Join Date: Oct 2009
When people talk about saving months worth of living expenses, it's with the idea that they might lose their job someday. That way, they won't end up in financial ruin if that day were to come.
If your income got pinched and your back-up plan is a 19% APR credit card, that's not a good position to be in. People go into bankruptcy like that.
Last edited by Mounds; 12-19-2011 at 05:19 PM.
|12-19-2011, 05:36 PM||#11 (permalink)|
Join Date: Jul 2011
2. I am dead serious.
In countries where a low interest rate on a credit card is 50% a year, keeping a cash balance is a reasonable course of action. In civilized countries where a high interest rate on a credit card is 20% a year, it is not a reasonable course of action. If you stay jobless for so long that the interest becomes a real problem, your problem is not the lack of a backup fund, your problem is a lack of marketable skills.
|12-19-2011, 06:34 PM||#13 (permalink)|
Join Date: Jul 2011
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