How much to keep in savings?

amother

Magenta

Wed, Jul 03 2019, 2:28 pm

You need to keep at least six months of living expenses in liquid savings. That means all expenses that you would need to pay during that period.

Above and beyond that you should be saving money for long term goals such as retirement - obviously this would mean anything that is employer matched or results in tax benefits.

amother

Slateblue

Wed, Jul 03 2019, 2:31 pm

amother [ OP ] wrote:

I know people say follow Dave Ramsey’s advice but does he have an exact calculation what to keep in emergency savings? I need to figure out a safe amount... I’ve also heard 6 months of total cost of living -does that include Mortgate, tuition, food and car?
All opinions are welcome Smile

total cost of living means all of the cash that needs to leave your bank account over six months - whatever its for.

amother

Taupe

Wed, Jul 03 2019, 2:34 pm

amother [ OP ] wrote:

Yes, his exact calculation for an emergency fund is 6 months cost of living - yes it includes mortgage, tuition & car

amother

Magenta

Wed, Jul 03 2019, 2:42 pm

This isn't specific to Dave Ramsey - it's pretty standard to basic financial planning in terms of the planning for a worst case scenario which for most people would be the loss of a job for a middle income person.

Statistically it takes several months for a person to replace that kind of position and might take longer depending on individual circumstances. I've been unemployed and it took longer than six months and it was a combination of savings and cutting expenses down to the bone which enabled me to keep afloat until I found a new position.

Don't forget to figure in that certain expenses might be less like commuting but certain expenses like health care might increase because one now has to pay employer's share of health care.

Florake

Wed, Jul 03 2019, 6:54 pm

I'd add at least $ 5,000 to the calculation to cover any uninsured losses. So many lower cost health plans have high deductibles and even higher maximum out-of-pocket expenses. You can easily get stuck with a $ 5,000 to $ 8,000 bill in a medical emergency. A dental emergency can be worse. A broken tooth or if a root canal and crown are needed, the bill can easily be $ 3,000. Usually the dental specialist wants the money up front as they have to pay for the lab fees. up front for having your crown made.

Also, if your car isn't under warranty and like the transmission or something else expensive goes out....there's another uninsured loss.

amother

Forestgreen

Wed, Jul 03 2019, 8:37 pm

Is this advice universal? I've seen this posted before and often wondered about it. My husband and I are both salaried employees. If we lose our jobs, unemployment insurance kicks in. If one of us chalilah falls ill, illness insurance kicks in and the illness coverage on our mortgage would leave us completely mortgage free (Canada). Six months worth of expenses seems like way more than we would need in an emergency.

amother

cornflower

Wed, Jul 03 2019, 8:49 pm

amother [ Forestgreen ] wrote:

America is not Canada. If you are lucky to have health insurance through your job, you lose it when you lose you job unless you want to pay expensive premiums. You can get on the health exchange, but it may be unaffordable. There is no illness insurance on a mortgage that I know of. Unemployment is money, but it's usually not that much and of a limited duration. You need money to live on when you lose a job.
Plus, not every health expense is covered by insurance and there are huge deductibles and copays. So even with a job, you still need savings. Plus there are other expenses that may come up even with a job (Major repairs (oven, heat, car, etc). Savings are important if you can manage it.

nicole81

Wed, Jul 03 2019, 8:59 pm

amother [ Forestgreen ] wrote:

I'm pretty sure his advice is geared towards Americans. I do think it's pretty good universal advice, but of course if an individual has some other emergency contingency plans, whether personal or as a function of living in a specific society, that would reduce the necessary emergency savings.

The maximum unemployment payment here is a fraction of either of our salaries, so we personally don't consider it when thinking about emergency savings. If we're ever in the situation, if anything, unemployment would let us stretch the emergency savings an extra month or two, but not replace any of it.

nicole81

Wed, Jul 03 2019, 9:04 pm

CanadianNYer wrote:

It's just seems impossible to save up that much, even though it is necessary.

I would focus on having a couple of months of emergency funds and then rolling as much money as possible into interest bearing retirement accounts. This way your money will grow faster, and you can always pull it if you truly find yourself in an emergency.

amother

Powderblue

Wed, Jul 03 2019, 9:43 pm

I don't really agree. If I lost my job we would get health insurance on the marketplace or maybe Medicaid. Get onto food stamps. Stop paying tuition for a bit and buying clothes. And then get another job. My husband and I are both proffesionala with skills and I don't see why it would be difficult getting a new job. My husband gets reached out to by recruiters a few times a month and the field I'm in is also in high demand. I got a job 3 months before I graduated and started working a day after graduation. But I guess everyone has to know their situation. To me it seems a shame to have 60k in liquid cash doing nothing for you.

amother

cornflower

Wed, Jul 03 2019, 10:03 pm

Job markets change. Recessions happen. Illnesses and disabilities c'vs happen. I'm also a very highly skilled professional, but I have six months in savings. It's your life. People have different risk tolerances. Also, in savings doesn't necessarily mean doing nothing. It just means relatively safe and liquid.

amother

Magenta

Wed, Jul 03 2019, 10:15 pm

amother [ Powderblue ] wrote:

So you as a household with two employed highly skilled professionals don’t have the equivalent of six months of some form of liquid assets.

As posted above, liquid assets don’t mean cash in your mattress but assets that can be reached relatively easily in the event of the need for them. A house isn’t considered to be liquid but a savings bid would be or even a bond fund. Stocks aren’t generally recommended because you might have to liquidate if the market is temporarily down.

amother

Powderblue

Wed, Jul 03 2019, 11:36 pm

amother [ Magenta ] wrote:

No we don't. We are both new at our jobs (started 1-2 yrs ago). We saved 10k this past year not counting the percent we put in our 401ks I think we'll continue saving till about 30k and then start doing something with our money. Buy another house or maybe invest in a business or at the very least mutual funds.

amother

Slateblue

Thu, Jul 04 2019, 9:25 am

amother [ Forestgreen ] wrote:

You save for what would not be covered by your insurance policies.

amother

Slateblue

Thu, Jul 04 2019, 9:28 am

amother [ Powderblue ] wrote:

really? You make a commitment to your school to pay tuition. You shouldn't plan around not paying it.

amother

Magenta

Thu, Jul 04 2019, 10:46 am

amother [ Powderblue ] wrote:

I don't want to single you out but you don't invest in a business or buy a house as an investment unless you have a lot of money to fall back on in the form of other safe investments.

Real estate investments require liquid capital because you can't rely on cash flow - tenants can stop paying rent - they need maintenance on either large or small items and if your income stops for any reason mortgage and taxes steal need to be paid. For the reason that your own home isn't a liquid asset, real estate property isn't either.

And a business isn't considered to be a liquid asset either since it is as difficult or more difficult to sell a business or otherwise raise funds on it as a home.

In terms of the original post, to be financially secure, a family needs to be have six months of LIQUID ASSETS that will fund the real living expenses for six months which means funds that can be tapped into immediately in the event of an emergency loss of income. If there is some other emergency that causes one to need such funds - medical, extreme housing etc. then better to use these funds and replenish than to run up expensive credit card expenses.

And if one is lucky enough to find a job in one to two months, then one is ahead of the game as one then replenishes the six month liquid account and has it there earning some amount of money.

amother

Powderblue

Thu, Jul 04 2019, 1:25 pm

[quote="amother [ Magenta ]"]I don't want to single you out but you don't invest in a business or buy a house as an investment unless you have a lot of money to fall back on in the form of other safe investments.

Real estate investments require liquid capital because you can't rely on cash flow - tenants can stop paying rent - they need maintenance on either large or small items and if your income stops for any reason mortgage and taxes steal need to be paid. For the reason that your own home isn't a liquid asset, real estate property isn't either.

And a business isn't considered to be a liquid asset either since it is as difficult or more difficult to sell a business or otherwise raise funds on it as a home.

In terms of the original post, to be financially secure, a family needs to be have six months of LIQUID ASSETS that will fund the real living expenses for six months which means funds that can be tapped into immediately in the event of an emergency loss of income. If there is some other emergency that causes one to need such funds - medical, extreme housing etc. then better to use these funds and replenish than to run up expensive credit card expenses.

And if one is lucky enough to find a job in one to two months, then one is ahead of the game as one then replenishes the six month liquid account and has it there earning some amount of money.[/quot

I hear you. It really depends on your area with regards to housing. If houses are 200k and rent out for 1500 it is somewhat worth it. Or ready to move out of your starter home and rent it out and buy another more suitable home for your family.