I've been playing around with my money a lot in recent months due to home renovations. But these are drawing to a close and I plan to pay down any surplus funds onto my home loan.
What I'm not sure about is how much to keep as an emergency fund after. My budget covers everything from doctors fees to rates (house taxes) etc so I don't need to have funds aside for that sort of thing. My car has been recently serviced and is in good condition. I have no debts. I have income protection for redundancy & sickness.
I have a low interest credit card if I needed quick access to funds (never used it for this purpose before but I know some people do) & work in a bank so would be able to get approved for a loan or anything if I needed it- however this is something I would ideally like to avoid. My investments cannot be accessed in a hurry which is deliberate.
How much do you think I should keep aside? I know some people recommend 3 months salary but that seems too much- I want my money working for me. Would one month be enough?
I think the X months salary recommendations make no sense, because they have no bearing on your actual expenses or potential liabilities. It sounds like you've got coverage for job loss and medical, and don't expect major car repairs. If you're a home owner, having at least your insurance deductible set aside would be a good idea. Preferably, you could handle larger home repairs such as a furnace going kaput without too much disruption of your finances. However, if you make $8K/month and spend $2k per month, in my mind, you effectively have a $6K cushion built in, because in an emergency you can simply stop diverting money to investments for a time period and address the emergency. However, if you make $2,500 and spend $2,000, your income won't absorb an emergency so neatly, in which case, it might be a good idea to keep some more liquidity. Likewise, a bigger cash cushion makes sense with increasing responsibility, such as dependents, rental properties, pets etc.
Personally, I keep about 2 months expenses liquid, and my bare expenses would be about half my take home if I were to drop my retirement contributions. I also have almost six months of combined sick leave and annual leave calculated into my cushion for illness/injury type situations, and know that unemployment benefits cover about half of my monthly expenses, effectively stretching my cash reserves out to a 4-month cushion if needed (job security is not a big issue to me, but you never know for sure).
