# What is the right level of Emergency Fund for a dual income family?



## Dazed&Confused (26 Dec 2019)

Hi folks,

From reading on AAB as well as other sites, the general rule of thumb for an emergency fund is up to 6 months of living expenses. From my very fortunate perspective, that seems excessively risk-adverse & not the best use of cash… Any insights on what would be a more suitable approach for a relatively “safe” dual income family?

Background: I am the primary earner (60% of the family income) working in a global role for a growing division of a large healthcare multi-national – v. low business risk. My partner (30% of the family income) is part-time in a large pharmacy retail chain in a growing new store. Extra hours can be easily found in the current business or as a locum. 10% of our income comes from a mix of sources: rent, dividends, capital gains & children’s social welfare. We have 3 kids ranging from 2 to 8 years old.

I would see our incomes as relevantly “safe”. In saying that, I worked in the aerospace industry (in my first job) when 9/11 happened & saw the economic impact overnight. I appreciate there is risk to every industry – some known & some unknown.  

Eager to hear different perspectives on what a suitable level of an emergency fund is?

D&C


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## Brendan Burgess (26 Dec 2019)

I would agree that you do not need 6 months' cash. 

If you lose your job, you are likely to get a redundancy payment anyway, which would act as your emergency fund. 

If you have liquid investments such as shares, you can always convert them into cash easily in an emergency.

It is also likely that you have an overdraft facility and big limits on your credit cards which you could use in an emergency. 

And, it's also very likely that you have family who could lend to you if have a problem 

And, you could probably agree a mortgage moratorium if you got really stuck.

If you have a mortgage at non-tracker rates, you should be paying down your mortgage.  It does not make sense to borrow money at 4% to put it on deposit at 0%. 

If you anticipate expenditure in the near future e.g. replacing your car, you should build up a fund for that, rather than borrowing to do so.  And that can be your emergency fund as well.  When you buy your car, then maybe build up a fund. 

Brendan


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## Dazed&Confused (31 Dec 2019)

Thanks for sharing your insights Brendan.

What prompted me to post was weighing up 6 months emergency funding vs over-paying on the mortgage. Your post Brendan has pushed me to over-pay more. Thanks.


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## Gordon Gekko (31 Dec 2019)

For what it’s worth, we’ve adopted the ‘6 months approach’. I don’t think that it could be described as ‘excessively risk-adverse’. 

Why? Because once it’s done, every incremental cent is being invested more aggressively, either into property by way of mortgage overpayment, into equities by way of a personal portfolio, or into an investment property.

If you look at your overall asset allocation, 6 months’ worth of net income should represent a very small percentage.


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## Eireog007 (2 Jan 2020)

When you refer to 6 months cover is that 6 months of your entire outgoings or half of them as I would feel that both partners losing their job at the same time with no redundancy is an extremely unlikely scenario. Although the financial crash we just got through is a massive red flag to the contrary.


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## Gordon Gekko (2 Jan 2020)

We keep the equivalent of 6 months’ joint net income.


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## Dazed&Confused (4 Jan 2020)

Thanks for sharing your perspective Gordon. 



Gordon Gekko said:


> We keep the equivalent of 6 months’ joint net income.


Interesting - the usually approach (I believe) is to have 6 months of expenses... So depending on what your out-goings are (& with an option to stop your discretionary spend), your 6 months joint net income will be many more months of expenditure. Food for thought.



Gordon Gekko said:


> For what it’s worth, we’ve adopted the ‘6 months approach’. I don’t think that it could be described as ‘excessively risk-adverse’.



I fully appreciate the need for an emergency fund for many reasons. From an income perspective, when I worked in the aerospace industry I lost my job after the tragic 9/11 events. There are also other reasons due to unexpected increases in cost. We lost our family home in a house fire last summer & needed to book a months worth of hotel rooms for a family of 5 at short notice. If you are ever going to have a house fire, I would advise not to have it at peak summer season - its expensive because accommodation is highly booked! 



Gordon Gekko said:


> Why? Because once it’s done, every incremental cent is being invested more aggressively, either into property by way of mortgage overpayment, into equities by way of a personal portfolio, or into an investment property.



My primary motivation for reducing the emergency fund (for the next 2 years) is to accelerate the over-payment of the mortgage. We took out a 30 year mortgage 3 years ago (€370k) - I think it was €1,200 per month. I (more so than we) have been obsessive about paying off the mortgage - currently down to €148k. By dipping into the emergency fund (along with monthly over-payments & share sales), I aim to pay it off by March 2022. At that stage, a major component of our cost base will be eliminated & we can re-build the emergency fund as well as invest into a personal portfolio.


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## NoRegretsCoyote (5 Jan 2020)

It's a good rule of thumb but depends on your cirumstances.

Say for example you have a permanent PS job, or insurance that continues your income in the event of disability.

In this case there may be better ways of putting your cash to work.

If you're a self-employed contractor you're vulnerable to a downturn in the sector or illness. In this case six months may be on the low side.


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## Gordon Gekko (5 Jan 2020)

It is also important to consider the cash in the context of one’s overall asset allocation. Yes, 6 month’s worth might seem excessive, but if it only represents a low percentage of the individual’s overall asset allocation, that does change the analysis somewhat.


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## Sarenco (5 Jan 2020)

Setting aside 6 months’ net household income as an emergency fund, while carrying a mortgage, seems overly cautious to me.

3-6 months of the household’s average expenses would seem more appropriate to me.  

Any after-tax savings over and above that amount can be applied against the mortgage, without changing the original term.


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## Itchy (5 Jan 2020)

Dazed&Confused said:


> I fully appreciate the need for an emergency fund for many reasons. From an income perspective, when I worked in the aerospace industry I lost my job after the tragic 9/11 events. There are also other reasons due to unexpected increases in cost. We lost our family home in a house fire last summer & needed to book a months worth of hotel rooms for a family of 5 at short notice. If you are ever going to have a house fire, I would advise not to have it at peak summer season - its expensive because accommodation is highly booked!



Interesting contribution! You have experienced an event that is probably at the extreme end of circumstances that one is keeping their emergency fund for and you are looking at reducing it rather than bolstering it. Food for thought.


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## Dazed&Confused (6 Jan 2020)

Itchy said:


> Interesting contribution! You have experienced an event that is probably at the extreme end of circumstances that one is keeping their emergency fund for and you are looking at reducing it rather than bolstering it. Food for thought.


Lightning never strikes twice - right!  
and if it did, I think the gardai would have a lot more interest!


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## Alkers86 (6 Jan 2020)

We try to keep enough to cover 6-months of expenses as an emergency fund (that we've admittedly dipped into once or twice). That would cover us in the event of only one of us earning for 6-months or neither of us earning for three months without any reduction in lifestyle and discretionary spending. We both have income protection policies that kick in after 26 weeks and if we needed to access additional funds we can look at our discretionary spending, cease pension contributions (20% each) and look at going interest only on the mortgage for a while. We are both employed in the construction sector so are fairly exposed to another building recession.


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## Blackrock1 (6 Jan 2020)

i would suggest 6 months of the higher income earners net income is a suitable emergency fund.

as another posted stated both losing jobs at the same time is unlikely and if it does happen due to some massive economic shock your problems will probably be bigger than 6 months net salary can fix.


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## EmmDee (6 Jan 2020)

There may be other factors such as what you work at, level of pay you would expect to get if you had to look for  a new job, what stage of life you are at.

I have taken a more conservative view over the last 10 years or so and planned that, if I were laid off, it could take 1-2 years to find something comparable (or build up to a similar profile in another role) - or have to move country (with all the costs involved). So I've tended to keep a higher level of liquidity. However, given my profile in terms of age, where the kids are at etc, I'd probably bring it down to less than a year of liquidity now.


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