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."
(Score: 3, Interesting) by PiMuNu on Tuesday October 22 2019, @03:36PM
> 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?