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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: 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.