The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: jade on May 15, 2020, 03:04:22 AM
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Hiya,
Hope you're all doing OK.
A question about emergency funds with the ongoing uncertainty of the pandemic... Myself and my husband live in the UK and are both on zero hours contracts, he's a nurse and is 49, I work in a university and am 44.
We normally have at least around 6 months spending (over £6k) in cash on hand. We usually earn approx £24k a year together and live on 12k a year and save 12k a year. Our house is paid off (worth approx £220k). Our savings go into Vanguard life strategy 60/40 ISA. We currently have around £60k in there.
We stopped paying into Vanguard in April as whilst I can work from home for now, my husbands nursing work stopped (private) and he's unable to work during the pandemic. However we've just found out a few days ago that he is allowed to be furloughed (receive 80% of monthly income from government) after being told originally he wasn't.
The employment future for both of us (like many people) is uncertain. We're not sure if he'll be able to go back in to that role in the foreseeable future even when his department is working again as its high risk and I have underlying health conditions. Depending how long furlough lasts, we'll have more decisions to make about his role later on down the track. My work is usually regular but I think there's a good chance it may be affected in September with the new academic year as my role relies on student intake numbers which may well drop. Though we've worked out that even if I dropped a day which is the worst case scenario, we would still be covering all outgoings for both of us.
We're debating whether to start contributing to Vanguard again... Maybe £500 a month. We currently have over £12k in bank accounts. Unusually for us, my husband is the one keen to start paying in to Vanguard and I'm the one wondering if given the bigger picture and our individual situation we should be keeping more cash on hand as this uncertainty could pan out over years not months...
We also have the option of hubby starting a pension in September (around £2k a year). Another tangential thought is possibly moving to a flat / cheaper area and releasing some equity from the house if needed. Our rough plan was to retire in the next 5-10 years, my husband 5 years before me.
We know there's no crystal ball for any of us but wanted to see peoples thoughts. We could obviously start paying in to Vanguard and stop if things change with our income. We are simple investors and just save into Vanguard and have taken the advice here not to interfere or pull out money now but wondering if given our situation, its advisable to be paying in...
Many thanks!
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You've got a year's expenses in cash. I don't think anyone could tell you with certainty what's going to happen to the economy, or to your particular parts of it, over the next year or two. Your guess is probably as good as anyone's.
If your husband will get 80% of income on furlough then presumably that's most of your expenses covered, which means that your year's cash will last even longer. Are you entitled to anything from your work?
Are you keeping an eye on your National Insurance records? It's important to keep up your qualifying years and it's unlikely either of you have got to the very helpful 35 years of contributions yet: perhaps look at making voluntary contributions. https://www.gov.uk/check-national-insurance-record
Whether your husband should take the pension at 50 (the earliest possible under pension tax rules) will depend on what would happen to it if he doesn't - usually there is a formula you can find in the pension scheme rules for how much it will increase during the time he delays taking it. I would warn that sometimes pension scheme rules may not provide for automatic inflation increases until he is older, 55 or 60, which reduces the pension value considerably if taken at 50. So you both need to look very carefully at what the pension scheme rules say and how it works out under different scenarios.
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Thanks for the info former player.
We're aware there's no crystal ball for any of us.. We just wanted to get second opinions particularly on the paying into Vanguard decision as we don't know a lot about investing which is why we'd set up this fairly simple system. We didn't want to start paying in again and then wished we'd gotten some more advice.
Yeh, we do have at least a year of cash. I don't know about other options with my work going forward, at present.
We have an eye on NI too.. Hubby has 3 years to go and 5 for me.
We'll look into pension and pros and cons of taking at different ages, thanks. There's no rush to get this though with the year plus of expenses.
Thanks again.
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Unusually for us, my husband is the one keen to start paying in to Vanguard and I'm the one wondering if given the bigger picture and our individual situation we should be keeping more cash on hand as this uncertainty could pan out over years not months...
If you stay out of the markets for years while there is heightened uncertainty and then invest only during times of prosperity, your investments will almost certainly underperform. You have 75% your assets in real estate, 12% in stocks, 8% in bonds, and 4% in cash. Looking at this "bigger picture," you're in a very conservative AA and not likely to capture much upside assuming your home is in a stable market. So I'm with your DH on this one and would resume ISA contributions until such time as you can't. Waiting for clarity for years while hoarding cash is not a recipe for building wealth.
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Thanks FatFI2025, appreciate your thoughts and we've agreed now to go this way with it.
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Cash brings peace of mind, especially during troubling/uncertain times. If you are nervous then increasing cash, at least for now, will ease the nervousness.
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Cash brings peace of mind, especially during troubling/uncertain times. If you are nervous then increasing cash, at least for now, will ease the nervousness.
Yeh I think that's what we've realised plus choosing a new EF figure (a year).. Feeling much better about it now, thanks for this.
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We're in similar boats in terms of age and trying to get to a magical number for health retiree benefits. Being in the US, I actually have to work slightly longer than you do because of the way my employer has things structured, but it's the same idea. Plus, I have to not change employers, which is tricky given my current situation at work.
Not having quite as much free cash as you have, we did temporarily stop kicking the extra into Vanguard for Apr-June. The plan is to resume at the end of June and (hopefully) get to our annual target in Vanguard. Meanwhile, we stuck that discretionary money into cash savings accounts for a little piece of mind. We still have some investments going to Vanguard through our work plans, though, so our investments didn't really stop.
So my point is that it's not an "either/or" scenario. You can do a little of both . . . build your cash and put some into Vanguard.
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I've been building up a 6 month cash fund by putting ~50% spare funds at the end of the month into a savings account and investing the other ~50% according to my AA in my taxable account. No "right" or "wrong" answer. Do whatever you are comfortable with.
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I had 60K in savings at the start of Covid and invested 10 of it when the market dropped significantly. I wasn't sure thereafter with the volatility and held off any more investments (not including 401K). Well, I got whacked this week at work and my last day is less than a month away. 50K will cover my expenses for about 16 months, 20, if I cinch up the belt.
Last time I was laid off, in 2008, I got a job within a month. A little older now and with Covid, who knows what is in store. I know emergency savings is definitely a hot potato issue at MMM but personally, I would be anxiety-ridden if I had a small emergency fund.
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Sorry to read that you lost your job, dodojojo.
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Hi Zamboni, dodojojo and Retire-Canada, thanks for your validation and sharing your stories... Wishing you well with the job hunt dodojojo.
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Zamboni, Jade, thank you. I'm going back to work for the first time tomorrow since getting the news last week. I have another meeting with my managers to discuss the situation so I'll likely start a thread thereafter for MMM advice.
Jade, good luck with your decision.
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Zamboni, Jade, thank you. I'm going back to work for the first time tomorrow since getting the news last week. I have another meeting with my managers to discuss the situation so I'll likely start a thread thereafter for MMM advice.
Jade, good luck with your decision.
All the best!