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posted by Fnord666 on Tuesday October 22 2019, @09:46AM   Printer-friendly
from the there's-always-the-day-*after*-tomorrow dept.

Economists say this is the Minimum Amount of Money you Need in an Emergency Fund:

Money experts generally encourage you to set aside three to six months' worth of living expenses in an emergency fund. Some even want you to stash away a year's worth.

After all, life doesn't usually go as planned: There could be another recession, you could lose your job, have a medical emergency or have to deal with a car breaking down. That's why, when it comes to emergency savings, "more is always better," personal finance author David Bach says.

But economists Emily Gallagher and Jorge Sabat challenge the oft-cited savings rules in their 2019 report, "Rules of Thumb in Household Savings Decisions." "People are usually given really high savings thresholds, like you should be saving six months' worth of income or you should have $15,000 squirreled away," Gallagher tells CNBC Make It. But those numbers aren't "based on much," she adds.

After crunching the numbers, Gallagher and Sabat found a more realistic amount for low-income households, specifically, to aim for: $2,467. If you have that much saved, your probability of falling into financial hardship (not being able to pay rent, bills or medical care) is low.

To get to that number, Gallagher and Sabat, who are also assistant professors of finance, used data from the Survey of Income and Program Participation (SIPP) to graph the relationship between falling into hardship in the next six months and how much you have saved as a buffer. They looked at financial information on more than 70,000 lower-income households, which the report defines as those earning under 200% of the poverty line. To put that into context, that's up to about $30,000 a year for a family of four, says Gallagher. This group represents "about 30% of the U.S. working-age population," she adds.

They found that if you have very little saved — say $200 to $500 — each additional dollar you set aside dramatically reduces your likelihood of falling into financial hardship. But once you have at least $2,467, "all of a sudden, saving an additional dollar didn't seem to be that helpful anymore," says Gallagher. "It still reduced your probability of falling into hardship a little bit, but it wasn't nearly as effective as when you were at low levels of savings."


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  • (Score: 5, Interesting) by ledow on Tuesday October 22 2019, @10:06AM (34 children)

    by ledow (5567) on Tuesday October 22 2019, @10:06AM (#910225) Homepage

    I'm 40. I have never, in my entire life, had any significant amount of savings, especially not five-figures.

    I have probably had the equivalent of $2400. I have never been in significant debt. I have no significant assets (I have a car and a 8-year-old laptop, that's about it, and no it's not a particularly fancy car, it's a Mondeo/Fusion).

    Note: the following items are where most people gain assistance: Family assistance, savings, inheritance, living with a partner (instantaneously twice the income, but only 1.4x the expense), a stock of assets, shares or money which earns significant interest (i.e. way past any basic savings account interest) that they can afford to be without and risk.

    When you don't have those, when you're living on your own, when you're merely paying the bills, and when you have virtually NO DISPOSABLE INCOME after that, life sucks and you can't take advantage of such schemes.

    I don't drink, I don't smoke, I don't do drugs, I don't go out very often, I don't have holidays (some years there's no point taking my full holiday time at all, because I'll just be able to sit at home doing the same thing I always do). I have owned or part-owned three houses in that time (with mortgages). When sold / handed over, they were worth enough to pay off the existing mortgage plus interest. That's it. I also earn more, adjusted for inflation, than either of my parents have ever earned in their entire lives (and even collectively, I believe).

    (My parents, by comparison, bought a £10,000 council house in the 70's that's worth over half-a-million now, despite the fact that £10,000 in adjusted money should only be worth about £90,000 today. £90,000 today wouldn't buy you a studio flat within 20 miles of their house. That's what they *should* have had, but the housing boom means they're probably sitting on more money than I've ever earned in my life. It also means that I can only just afford to rent a two-bedroom flat, and the maximum mortgage I can get on my own is £180,000 which is about enough to get a studio or one-bed flat if I'm lucky).

    They will have a nice government pension, with no mortgage (they paid that off years ago) and little expenses. I will work until I've 65 and spend my life in rented accommodation, then only be eligible for a basic pension that won't even pay one quarter of the rent on a one-bed studio flat.

    The assumption that I will inherit even a percentage of their house/money when they die is predicated on them both dying before me, and choosing to leave it to me and my brother without debts, which isn't a given. I would not be able to secure a mortgage on their house, even if my brother and I clubbed together and lived in it together (which would never happen).

    Some generations have things set.

    The next generation are pretty much stuffed.

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  • (Score: 2) by PiMuNu on Tuesday October 22 2019, @10:50AM

    by PiMuNu (3823) on Tuesday October 22 2019, @10:50AM (#910233)

    Are you on minimum wage? Can you not get a reasonable paying job after working for 20 years?

    Expenditure: Say you are living in London. It is reasonable to find a one bed flat for https://www.london.gov.uk/what-we-do/housing-and-land/improving-private-rented-sector/london-rents-map

  • (Score: 2) by PiMuNu on Tuesday October 22 2019, @11:10AM (27 children)

    by PiMuNu (3823) on Tuesday October 22 2019, @11:10AM (#910241)

    How strange, my other comment got mangled.

    I meant to say that rent is £12000 per annum, food is £2000 per annum, bills are £2000 per annum, transport is £2000 per annum, so reasonable expenditure is £18000.

    It isn't that hard to find a job earning 18000 after tax; even if you are on minimum wage (about 14000 after tax) you should be able to manage by choosing to live in a crappy flat; or move out of London to pretty much anywhere else where rent prices are much cheaper.

    If you want to buy a place, rent price pretty much follows the mortgage market. So similar costing applies, but you need to save a deposit for a few years.

    • (Score: 2) by PiMuNu on Tuesday October 22 2019, @11:49AM

      by PiMuNu (3823) on Tuesday October 22 2019, @11:49AM (#910255)

      I should also say, I'm not trying to do anyone down, I just want to understand the costing behind claims about poverty.

    • (Score: 0) by Anonymous Coward on Tuesday October 22 2019, @12:57PM (25 children)

      by Anonymous Coward on Tuesday October 22 2019, @12:57PM (#910267)

      It’s adorable that you think rent is USD 1,200 and “bills” are $215/mo in London and that “Food” should be the equivalent of $2.38/meal. In. London.

      It’s almost as if people don’t wish to live in absolute fucking squalor subsisting on cup noodles.

      My grocery tab in a WEEK is what you set for a month and your “bills” number isn’t even sufficient to cover parking.

      Sod off.

      • (Score: 3, Informative) by PiMuNu on Tuesday October 22 2019, @01:30PM (6 children)

        by PiMuNu (3823) on Tuesday October 22 2019, @01:30PM (#910280)

        > Sod off.

        Sorry, I wasn't trying to insult anyone. Let me defend my numbers. I do know London quite well.

        As a single bloke, I spent about £25 per week on groceries, admittedly a few years ago. 2.60 is fine for a decent meal - say 1/2 pack of pasta (10 p) plus some sauce (50 p) and a bit of meat (1 pound) and a glasss of wine (1 pound). Or if you prefer paella, curry, etc the cost is similar. A sandwich for lunch and a bowl of cereal for breakfast is cheaper, so the average should be less in fact, but savings can turn into a pint of beer on a Friday night!

        Rent prices:

        https://www.london.gov.uk/what-we-do/housing-and-land/improving-private-rented-sector/london-rents-map [london.gov.uk]

        I lived in Vauxhall in a flat share for about £100 per week, which is cheaper than the link even given some allowance for inflation. We shopped around a bit to find a cheap flat which helped.

        > My grocery tab in a WEEK is what you set for a month

        I don't really understand how you can spend so much. Maybe you are buying ready meals for every meal or eating out all the time?

        > and your “bills” number isn’t even sufficient to cover parking.

        If you are a single bloke, why would you run a car in London? The public transport is absolutely awesome! But yes, I didn't cost running a car. I have no idea how much parking costs. I lived in London for 4 years without running a car, and never felt like I was missing out.

        • (Score: 0) by Anonymous Coward on Tuesday October 22 2019, @01:44PM (4 children)

          by Anonymous Coward on Tuesday October 22 2019, @01:44PM (#910290)

          “We” is a rather large word there.

          As for the grocery tab, I suggest investigate the cost of, say, a bell pepper or say butter.

          Again, the person’s point above was that LIVING (not surviving stacked like cordwood in a dorm with a half dozen mates eating cup noodles) 40 years alone one doesn’t get to divide costs and at a certain point you like to eat the occasional chicken.

          I haven’t owned a car for a decade either, but I still recognize that maybe not all 40+ yos really feel like taking public transport for everything.

          • (Score: 2) by PiMuNu on Tuesday October 22 2019, @02:06PM (2 children)

            by PiMuNu (3823) on Tuesday October 22 2019, @02:06PM (#910310)

            > As for the grocery tab, I suggest investigate the cost of, say, a bell pepper or say butter.

            Well, "tomato sauce" is short hand for e.g. tin of tomatoes (10p) + a bell pepper (50p) + an onion (10p). Ah, I went over my 50p budget, so may have to cut back on the meat/wine a bit.

            > not all 40+ yos really feel like taking public transport for everything

            Well, don't forget I am trying to budget for 18k per year after tax, about 22k per year, which is a really low salary in London. If 40 yo is on 22k per year and wants to live in London, then it's a tough life but poor guy has to make some compromises.

            • (Score: 2, Interesting) by Anonymous Coward on Tuesday October 22 2019, @02:20PM (1 child)

              by Anonymous Coward on Tuesday October 22 2019, @02:20PM (#910329)

              The guy wasn’t crying about not be able to survive, he was saying he HAS survived, HAS made it 40 years without emergencies dragging him into debt and so on. He just hasn’t accrued WEALTH. Well, shockingly, that’s the mode of the distribution. But, that wasn’t really his point.

              The point he was making is that folks using real estate as their means of accumulating wealth are extracting that wealth on successive backs who
              must accrue more and more to accomplish the same — and because this causes wild market fluctuations, LOTS of people end up holding the bag and essentially are “home owners” in name only, economically indistinguishable from renters.

              But you want to whinge about the unconscionable luxury of buying the odd steak or a bottle of two buck chuck when oatmeal will sustain life just as well.

              Bully for you.

              • (Score: 3, Interesting) by PiMuNu on Tuesday October 22 2019, @03:36PM

                by PiMuNu (3823) on Tuesday October 22 2019, @03:36PM (#910360)

                > you want to whinge

                I thought the top post was saying how difficult it is to save up for stuff (like a house), which surprised me. I argued that it is not hard for single bloke to save some money unless he is on minimum wage when it gets a bit tricky. Maybe I misunderstood the original posters point.

                I didn't intend to whinge and apologise if it came across that way.

                > using real estate as their means of accumulating wealth are extracting that wealth on successive backs who
                > must accrue more and more to accomplish the same

                It's an interesting point, something I wonder about. Let's say there is a fixed volume of housing (as in UK) then what drives the cost of housing? What is the structural effect of allowing mortgages to exist?

                If we are all perfect capitalists; anyone who can afford the deposit should buy property until the rental price matches interest rates plus expected house price growth. This causes people to buy property, which drives house prices up, which makes a positive feedback loop and hence we get housing bubbles. Maybe this is what you are alluding to or some similar effect?

          • (Score: 2) by PiMuNu on Tuesday October 22 2019, @02:10PM

            by PiMuNu (3823) on Tuesday October 22 2019, @02:10PM (#910316)

            > “We” is a rather large word there.

            I just parsed this comment. Actually there were only two of us; we each had our own double-ish bedroom and we had a decent sitting room (luxury!). We were lucky to find the place, but I don't think such things are impossible, and cheapness can be had by moving away from central london. The public transport is amazing so no problem getting home post-pub.

        • (Score: 1, Interesting) by Anonymous Coward on Tuesday October 22 2019, @01:47PM

          by Anonymous Coward on Tuesday October 22 2019, @01:47PM (#910293)

          As a single bloke, I spent about £25 per week on groceries, admittedly a few years ago. 2.60 is fine for a decent meal - say 1/2 pack of pasta (10 p) plus some sauce (50 p) and a bit of meat (1 pound) and a glass of wine (1 pound). Or if you prefer paella, curry, etc the cost is similar. A sandwich for lunch and a bowl of cereal for breakfast is cheaper, so the average should be less in fact, but savings can turn into a pint of beer on a Friday night!

          > My grocery tab in a WEEK is what you set for a month

          I don't really understand how you can spend so much. Maybe you are buying ready meals for every meal or eating out all the time?

          If the cereal bowl in the morning is hot cereal (oats, cracked wheat, etc) it's even cheaper.

          My wife prides herself in making meals for our family that average $0.50/person or less, which most people don't believe is true until we show them the figures. It takes planning, buying and cooking from fresh ingredients, and avoiding restaurants entirely; however, it's really possible. We even hit all four food groups in most meals (we usually skip on meat in a meal or two per day). People who refuse to cook for themselves end up paying WAY too much for the food that they eat.

      • (Score: 3, Informative) by Immerman on Tuesday October 22 2019, @01:43PM (17 children)

        by Immerman (3985) on Tuesday October 22 2019, @01:43PM (#910288)

        Hint - if money is tight, you need to cook. As someone who grew up in poverty - if you're eating out, or buying frozen meals, you're screwing yourself over big time.

        $2/meal is a fortune if you cook - so long as your meals don't usually center around massive quantities of meat or other delicacies. A lasagna to provide 9 large and filling servings costs $5-$10 to make, depending on fillings. Which leaves you at least $1.27 for sides or savings - more than enough to add a salad and all the garlic bread you can eat. And lasagna is one of the more expensive casseroles you can make.

        And of course there's the staples that easily span the gaps - beans can be delicious, are incredibly nutritious, and very versatile flavor-wise and as an ingredient in other things (who doesn't love a good burrito?). And $1's worth will feed you for days.

        • (Score: 1, Informative) by Anonymous Coward on Tuesday October 22 2019, @04:48PM (10 children)

          by Anonymous Coward on Tuesday October 22 2019, @04:48PM (#910399)

          Hint: Your idea of “a fortune” is my grocer’s idea of “one bunch of scallions.”

          • (Score: 2) by Immerman on Tuesday October 22 2019, @05:14PM (9 children)

            by Immerman (3985) on Tuesday October 22 2019, @05:14PM (#910416)

            So don't shop at upscale boutique organic grocery stores for novelty foods if you're poor. Nobody ever said being poor is a walk in the park - it sucks. But feeding yourself plenty of nutritious food isn't expensive.

            • (Score: 0) by Anonymous Coward on Tuesday October 22 2019, @05:22PM (8 children)

              by Anonymous Coward on Tuesday October 22 2019, @05:22PM (#910421)

              That price is at Safeway.

              • (Score: 0) by Anonymous Coward on Tuesday October 22 2019, @05:25PM (7 children)

                by Anonymous Coward on Tuesday October 22 2019, @05:25PM (#910423)

                Also since when is a fucking green onion a “novelty food?”

                Christ, just how poor are YOU?

                • (Score: 3, Touché) by Immerman on Tuesday October 22 2019, @05:38PM (6 children)

                  by Immerman (3985) on Tuesday October 22 2019, @05:38PM (#910434)

                  Since you call it a scallion and charge more than 10x as much as for a normal an onion.

                  • (Score: 0) by Anonymous Coward on Tuesday October 22 2019, @05:57PM (5 children)

                    by Anonymous Coward on Tuesday October 22 2019, @05:57PM (#910448)

                    No, something as basic as a green onion costs about $2.50/bunch in a major US city at a commodity grocer.

                    Whether I call it a green onion or a scallion, the irony of someone as evidently unfamiliar with cooking to the point of not knowing how to make nachos, yet imploring others to cook more, is fucking hilarious.

                    • (Score: 2) by Immerman on Tuesday October 22 2019, @06:11PM (4 children)

                      by Immerman (3985) on Tuesday October 22 2019, @06:11PM (#910462)

                      I'm not the one claiming a bunch of scallions cost $10 at Safeway...

                      • (Score: 2) by Immerman on Tuesday October 22 2019, @06:17PM (1 child)

                        by Immerman (3985) on Tuesday October 22 2019, @06:17PM (#910465)

                        Wait, damn, misrecalled my first post early on and kept compounding the problem. Okay, $2 for a bunch of scallions is reasonable.

                        My orignal point remains though - you're probably not eating an entire bunch of scallions in one serving - such things are more seasoning than staple.

                        • (Score: 1, Interesting) by Anonymous Coward on Tuesday October 22 2019, @06:25PM

                          by Anonymous Coward on Tuesday October 22 2019, @06:25PM (#910471)

                          All I had to do was call a green onion a “scallion” for you to determine it was a wasteful luxury the poor shouldn’t aspire to.

                          Thank god I didn’t lament the skyrocketing cost of brassica, aubergine and pommes de terre.

                      • (Score: 0) by Anonymous Coward on Friday October 25 2019, @04:15AM (1 child)

                        by Anonymous Coward on Friday October 25 2019, @04:15AM (#911497)

                        I'm not the one claiming a bunch of scallions cost $10 at Safeway...

                        In my neck of the woods, the local Safeways sells scallions with a complimentary coating of fluoride from the local water municipality. At the checkout stand, they then receive a complimentary coating of conveyor belt cleaner. Gives salads an 'interesting' taste ... *thump*

                        • (Score: 2) by Immerman on Friday October 25 2019, @02:28PM

                          by Immerman (3985) on Friday October 25 2019, @02:28PM (#911635)

                          You know - they put those produce bags in the produce section for a reason... And personally I find there's enough uses for clear, food-safe bags that they never just get thrown away.

                          Of course that does nothing to protect you from the mung on the hands of all the people that have handled that food before you - farmers, packers, stockers, and other shoppers. Nor from the pesticides those scallions are coated with in the field. Yes - even if they're organic. Organic doesn't mean no pesticides, it just means no synthetic pesticides. And organic pesticides can be every bit as dangerous to people (I like to remind people that cyanide poison is 100% organic)

        • (Score: 2) by dry on Wednesday October 23 2019, @04:56AM (5 children)

          by dry (223) on Wednesday October 23 2019, @04:56AM (#910670) Journal

          Are you sure you're not out of date? I'm in Canada, so perhaps it's just more expensive but it has been decades since $2/meal was a fortune and even when I was really poor about 1980, I was eating pretty crappy (basically no greens and meat a rare luxury) on a dollar a day. Now a 10KG sack of potatoes is close to $10, onions close to a dollar a pound etc. One problem with being poor is having no room to buy bulk. You can get 50lbs of onions cheap at times but where do you keep them?

          • (Score: 2) by Immerman on Wednesday October 23 2019, @07:14PM (4 children)

            by Immerman (3985) on Wednesday October 23 2019, @07:14PM (#910949)

            Quite sure - $2/meal is $6/day, or $180/month. My girlfriend and I both eat quite well on a combined food budget that's not much larger than that.

            • (Score: 2) by dry on Thursday October 24 2019, @02:25AM (3 children)

              by dry (223) on Thursday October 24 2019, @02:25AM (#911086) Journal

              Ok, you're averaging meals. I spend about the same but breakfast and lunch are cheaper with dinner being more then $2.

              • (Score: 2) by Immerman on Thursday October 24 2019, @03:04AM (2 children)

                by Immerman (3985) on Thursday October 24 2019, @03:04AM (#911094)

                Absolutely. Further amplified by cultivating an appetite for a pallet of easy-to-make, nutritious, and cheap favorites, which leave lots of budget for spices, add-ins, and indulgances throughout the week.

                • (Score: 2) by dry on Thursday October 24 2019, @03:24AM (1 child)

                  by dry (223) on Thursday October 24 2019, @03:24AM (#911102) Journal

                  Not that rich, so eat pretty simple, though $2 of your dollars translates to a $1.60 odd here with higher cost of living including groceries.

                  • (Score: 2) by dry on Thursday October 24 2019, @03:26AM

                    by dry (223) on Thursday October 24 2019, @03:26AM (#911103) Journal

                    Math was wrong, $2 of our dollars equals $1.60 of yours.

  • (Score: 2, Insightful) by Anonymous Coward on Tuesday October 22 2019, @01:52PM (1 child)

    by Anonymous Coward on Tuesday October 22 2019, @01:52PM (#910297)

    The assumption that I will inherit even a percentage of their house/money when they die is predicated on them both dying before me, and choosing to leave it to me and my brother without debts, which isn't a given.

    Also, that they will not require any kind of care in their old age. If either of them ends up in a care home with significant care needs the fees can burn through their life savings and house value in a matter of a few years. Fees can be
      easily £1000 per week, and half a century of paying into the welfare system means jackshit to the current government. Your folks will be left high and dry and their assets stripped long before inheritance becomes a possibility.

    • (Score: 0) by Anonymous Coward on Tuesday October 22 2019, @10:50PM

      by Anonymous Coward on Tuesday October 22 2019, @10:50PM (#910588)

      The assumption that I will inherit even a percentage of their house/money when they die is predicated on them both dying before me, and choosing to leave it to me and my brother without debts, which isn't a given.

      Also, that they will not require any kind of care in their old age.

      Indeed. Or, that ledow himself will not need any sort of care in his old age. Or have any sort of financial emergencies (e.g., health problems) come up. Also, I seem to recall that, statistically, well over half of us are not expected to make it to full retirement age before being forced out of the labor market. (Again, health emergencies of the worker or a family member seem to be common causes.) I hope I'm wrong but it looks to me like ledow, if he continues on his present course, is likely headed for a financial train wreck sometime in the future. What's even more disturbing is that there are literally millions more like him all headed for a similar financial melt down and I don't really see any good way to bail them all out of their predicament. As I said, I hope I am wrong and wish him all the best.

  • (Score: 3, Funny) by DeathMonkey on Tuesday October 22 2019, @05:22PM

    by DeathMonkey (1380) on Tuesday October 22 2019, @05:22PM (#910420) Journal

    I don't drink, I don't smoke, I don't do drugs,

    No wonder you're broke. Those are all my cheapest hobbies!

  • (Score: 3, Interesting) by theluggage on Tuesday October 22 2019, @06:13PM (1 child)

    by theluggage (1797) on Tuesday October 22 2019, @06:13PM (#910464)

    I have probably had the equivalent of $2400.

    ...which - along with no significant debts - puts you comfortably ahead of the game c.f. the proportion of people with zero savings and possibly substantial debts on top of that (google and decide which figure you believe - they're all substantial). I'm not for one moment belittling your frustration, but it doesn't sound like you are the sort of person that TFA set out to lecture.

    You say "had" so its quite possible that - if you hadn't had those savings - you'd now have a $2400 debt that was going to cost you $5000 to pay off.

    I think the message is really aimed at all those people who think "disposable income" is the same as "credit rating" and think that they're doing just fine financially - but have totally lost track of what they're paying in interest and would crash and burn if a single pay check was a week late. Often, people in that position could easily amass an "emergency fund" with a bit of restraint and delayed gratification (my hobby: yelling "if you didn't have that £30/month cellphone you wouldn't need to call QuickQuid when the boiler broke down!" at the TV) - but that certainly doesn't apply to everyone.

    Yes, my parents won big on the property ladder, too, resulting in a nice, long, comfortable retirement - but, to be fair, after they bought their house for what seems like a trivial sum today they faced years of very "lean" living (of the 'tell that to kids today and they won't believe you' variety) to keep up the payments while raising kids - despite both having decent jobs. And, although a big chunk of the money went on care at the end, that meant none of my family had to become full-time carers, or otherwise put our hands into our pockets to look after them... so at least a bit of what goes around comes around.

    • (Score: 0) by Anonymous Coward on Wednesday October 23 2019, @02:11AM

      by Anonymous Coward on Wednesday October 23 2019, @02:11AM (#910632)

      £30 per month? Yikes. My current phone cost around £40-ish grand total. I'm a luddite tho and refuse to use a "smart" phone.

      I'm also doing better than most except on the mental health front. (I have competent professional help....) Make of that what you will.