Podcast: Emergency Funds & Short Term Savings

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In this episode, we discuss the ins and outs of emergency funds and other short-term savings like house deposits etc.  How much you need, where to keep it, balancing risk vs reward and more!

 

During the show, we cover:
  • What is an emergency fund and why do you need one?  (1:09)
  • How much do you need in your emergency fund?  (6:13)
  • The many different types of emergency funds, Pat’s approach and how it works in practice  (14:17)
  • Is there any way to optimise this stuff?  (25:01)
  • Saving for a house; where should you keep the money?  (28:42)
  • Dave’s approach to emergency funds  (32:07)
  • Listener case study:  “I feel like I’ve already over-extended on big ticket items, is it still possible to scale back and reach FI?”  (38:57)

 

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Do you have something to add to this discussion?  Share your thoughts in the comments belowโ€ฆ

11 comments

  1. Hey guys, great episode.
    I had a takeaway that might be changing our emergency fund – that being the annual leave we have banked up with our employers. However, we tend to holiday quite often, so don’t normally have too much annual leave banked up. But it is a great perspective!
    We have our emergency fund in our offset account, so we do have it working for us at least.
    Stay safe!

  2. Hi Dave,

    I have a question for you and Pat. It might be too personal but I would greatly appreciate an honest answer.

    I am a single income earner and it would take me a long time to reach FIRE. I made the math and understand that FIRE is easier when you have a partner. As far as I understand you have reached FIRE because you are in a partnership and Pat is basing his calculations on a dual income household. Have you two ever thought about what would happen to your plan if you were to split from your respective partner? I am not saying that you will but I was in a relationship for 7 years before it ended. Good mates of mine were married for 22 years and recently got a divorce.
    How would your FIRE calcs look like if you went from dual to single income?

    All the best and stay safe,
    Julia

    1. Hey Julia. It’s a good question because you’re right, it is usually easier for couples. I can’t speak for Pat, but my case would simply mean that we’d each have half the assets but expenses would be slightly more than half if living separately.

      Either spouse could share housing of course and problem solved. But if both spouses want to have their own place, it would mean that a small amount of part time work (or more savings) would be needed. And for us, we’re both already doing that anyway. So our current lifestyle wouldn’t be affected whatsoever.

      If on the journey, it just takes a bit longer, but is still doable. It’s easier to make decisions as a single. One spouse might like to get a housemate, the other doesn’t.
      One spouse might want to ramp up their frugality, the other doesn’t. So it’s not downside for solo FI ๐Ÿ™‚

  3. Dave, been reading your blogs for a while now and you got me into this whole FIRE journey (best decision ever). Just wanted to find out your opinion on this new COVID 65k gov grant for first home builders and building a small villa to live in Perth. 200k for land 150k to build = 350-400k. 80k +65k grant deposit = about 150k down. Obviously the opportunity cost of not investing in shares is huge here but I’m 26 and make over 100k a year so still plenty of time for that.
    Thoughts?

    1. Well it’s totally up to you of course. But the problem with these grants is that it quickly gets priced into the cost of new buildings – there are already numerous stories of builders hiking up the price to account for the rebates.

      But if you’re keen to settle down and have your own low cost home, then by all means it might be a good move. Just be aware that you might be getting ripped off, so do your research, plus there may be competition in the areas you want due to the grants since people are in love with the idea of free money lol.

  4. Ooh I could never be so relaxed about having my emergency fund in the market! To be fair I’m single so am the only income earner. But 3 months of cash savings is the absolute minimum for me, which is how long it takes for my income protection insurance to kick in if it’s a health related loss of income. I don’t stress so much about job loss because my field of work is so secure. But the covid situation for one has demonstrated that even if *job* loss is not a concern for me, decreased *income* is still a risk even in my line of work.

    1. That’s fair enough, everyone has to decide how to play it for themselves, but luckily there’s no shortage of options! You bring up a good point: right now is probably causing a lot of people to realise how quickly things can change.

  5. Hi Boys ,

    Hope all is well ๐Ÿ˜๐Ÿ‘
    Question; Dave , I recall in one of your posts , you mention โ€œsafe assets โ€œ , having say 2 years of expenses , should it be needed as a top up of a possibility of reduced dividends. Is this separate to an emergency fund of say 3 months emergency money ??

    Cheers

    1. Hey Jimmy. The ‘safe’ assets is for when you’re retired, so in my eyes, this becomes your all-in-one emergency fund while retired, and you need a typical emergency fund in case of job loss while still on the road to FI. Hope that helps ๐Ÿ™‚

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