Savings

[UnaCorda]

It seems that very few people have a financial cushion of any sort and I'm curious as to why this is. I understand that some people are on a low/minimum wage or perhaps have unexpected outgoings, but there must be a lot of people to whom this doesn't apply.

Is it simply a matter of priorities? Is the cost of living simply too high to allow most people to save? Or do most people just spend most of their salary every month, regardless of any pay rise?

Or am I wrong and most middle-income or high earners do have a decent amount put away for the proverbial rainy day?

Disclaimer: I'm not asking this from the position of having a six-figure salary (or even a particularly high five-figure one) or a high-earning husband or a trust fund, etc.

Also, obviously people's financial situation could be completely different at the moment, so I suppose I'm referring to a pre-Covid situation.

I prepared income tax returns for many years (US) and knew many people and their finances. I learned early not to judge a book by it’s cover, as I prepared a return for an elderly minority gentleman who swept floors at night in a fabric mill. He was almost illiterate and made very little money but had learned to save a little bit every payday and amassed quite a portfolio. I was young and it was humbling for me, as I learned not to make assumptions. Others had incomes that looked like impossible riches, well into six figures, but had not a cent in savings. Some people are savers and some are not. Everyone has a different reason, and there are brilliant people who are awful with money, and low income people in blue collar jobs who save a lot. I make it a point, every payday, to pay myself first, buy putting something into savings!

It is hard to save, we have disposable income around 1000-1200 a month we budget 100 a week for spends (days out for kids, a bit on alcohol) so 'save' between 600-800 but it ends up going on house maintenance (mainly), birthdays (for the kids) a holiday abroad once a year, Christmas, mots. School holidays cost a fortune. I'm really frugal too, don't Spend on my self often, don't celebrate our own birthdays or buy take ways, don't go out for meals ect but the disposable income seems to be swallowed up, it goes into a savings account then back out again at some point.
we got gifted 5k recently we are going to spend 1000k on new doors as ours are about 20 years old and the rest will just stay there, forever I suppose.

I became a mum young. I do earn a decent amount and had a small safety cushion. Then my sons dads decided to dish me a doubly whammy of stop paying child maintenance AND drag me to family court so my savings went towards the £30k+ in legal fees I spent, I had to take out a loan and rejig my budget to account for the lack of maintenance plus loan repayment. Arsehole.

We have some savings, maybe 2 months income at the moment. It goes up and down.

I don’t feel the need for 6 months worth. We’re lucky in that we both get 6 months full and 6 months half sick pay. I can’t be made redundant, and DW very unlikely. And we both have life and critical illness cover, so we’re fairly well protected.

@LaurieFairyCake

Earn way above national average and never have a penny in savings

Instead overpay hugely on mortgage

But it's not accessible so not savings

Covid halved our income in a way that nothing except actual death would so ended up with a 7k overdraft until we could stop overpaying the mortgage - they took 3 months to answer the phone because of all the people who had to have an actual mortgage holiday

So now 7k in debt which we couldn't prevent, now paying it off much slower than it accrued due to income not recovering yet

Overpaying on a mortgage instead of building an emergency fund was a bit daft

I've always saved and invested, since I was a teenager. I vividly remember investing birthday gift monies into government bond issues when I was about 15, my mum guided me through that.

I'm now loosely following the FIRE moment, more for the FI than the RE part though.

Becoming financially literate at such a young age was a massive gift from my (single) mum. One I plan on passing onto my son.

DH and I have enough to meet all our bills for 6m. Most people we know have savings, on a range of incomes but none really low

@lauriefairycake talking about over paying mortgages... yes it's a good idea to overpay if you have a lot of spare cash. But it's not a good idea to do that at the total expense of an emergency fund. This is because you let house is not a liquid asset - if the shit hits the fan and you lose your job, you're screwed, as the only way you could access that money would be by selling your house. There's also the possibility of a housing crash and being in negative equity, or the price just being so low that you would rather wait for the market to bounce back.

Order of priority should be 1) paying off debt, highest interest first (but not student loan), 2) building an emergency fund of 3-6 months living costs, and only then 3) overpaying mortgage. That is why some pp were telling you it's stupid to do 3) before 2) - although they were a bit rude, they're right.

But it's not a good idea to do that at the total expense of an emergency fund. This is because you let house is not a liquid asset - if the shit hits the fan and you lose your job, you're screwed, as the only way you could access that money would be by selling your house.

I agree, not at the total expense of emergency funds, but my mortgage was quite flexible and it was both easy to overpay (either as a lump sum or a higher monthly payment) and to take take a few months' payment holiday without penalty, so it wouldn't have been difficult to access some of that overpayment if necessary. If I remember correctly that amount was put in a separate "pot" and could be drawn down. It just required a quick phone call.

Oh and OP I totally agree, obviously people on very low wages can't possibly save an emergency fund but the majority of people k know my age earn a very decent wage, at least average or above average, and most of them have little or no savings. They buy everything new, (cars, clothes, furniture etc) and would never consider buying second hand. They go out to eat regularly, have days out, cinema, trips out with pub lunches, drinks, etc every weekend. They all have foreign holidays, often several per year. Expensive weddings definitely have a lot to answer for - plenty of my friends have spent in excess of £20k. Latest phones, new tech (iPads, headphones, kitchen gadgets, coffee makers). Watches, jewellery, expensive make up brands like Mac and Bobbi Brown. Lots of women regularly spend £80 on their hair every couple of months, plus nails, eyebrows, general grooming. And then kids come along and you can spend a small fortune - literally - on baby clothes, latest pram, brand new furniture, decorating the nursery with £30 prints off Instagram etc.

I know I sound really judgemental - and I am a little bit I suppose - but what I'm really trying to say is that there is just SO much stuff you can spend money on now. It is is almost mind blowing and most of it is completely non essential. And I think that's the reason that the type of people you are talking about here have no savings.

bananallamas and Greygardens

I don't need an emergency fund

1. I have a lot of equity in my home, it's not possible for property to crash enough for it to be a problem

1. We have empty credit cards with 50k limit for 'emergencies' - so if boiler blew up/dog got sick we would put it on the credit card, stop overpaying the mortgage for 3-6 months, then pay credit card off

1. Dh can't really lose his job without notice (HT)

The ONLY problem is being unable to get the bank to stop taking the overpayment

Which took 3 months

So it will take a further 3 months to pay the overdraft off now that they have

Other people calling me 'stupid' for not understanding how my finances work is rude and frankly cuntish

I make a bit below the median UK salary. I try to keep about 3 months salary on savings (all extra then ges to save towards downpayment and investments). There has been times when I've had to drain the savings and then try to rebuilt. With the cost of living it takes a lot of time to build it up.

My bf is decent with money but he has no savings. At first he paid of his mortage quickly. Then he build up savings and his car broke down. Then he rebuilt savings and his contract ended. Then he rebuilt savings and boiler needed replacements. Then the floors needed an update. Problem with rainy day savngs is that when the rainyday comes it takes the money from the account.

I have savings because I'm managing to save a lot of my student finance. I get more because I have dependents and I work. Prior to this I broke even every month. Saving was a pipe dream.

@unacorda I've never looked into it too much but Martin Lewis has recently written about mortgage payment holidays and how they can affect your ability to borrow in the future, even if there is no associated financial penalty. He advises against them unless completely necessary.

@lauriefairycake as I said I agree it was rude of people to call you stupid, no need for that. But the problem with your point 1. Is that even if there's no chance of you being in negative equity, to release your equity you'd have to sell your home. This is problematic because a) it depends on the property market being ok ie you need a buyer, b) it is not quick - takes at least a couple of months and c) what if you don't want to move?

Was taught that you must have a back up plan because the only person who will save you and your children financially is, you.
The bank will not come to your rescue and everyone else is in the same financial strain as you or worse.
So even as a student, I saved - wasn't much mind.
I still save now, barely worth it in most people's eyes but I still can't not save. It feels like I would be sabotaging my future self.

bananallamas

Well point 1 is nowt without the further point that Dh can't lose his job unless he gets about a years notice

So IF he lost his job in this mythical scenario and we had to sell our home it's really unlikely I couldn't pay the mortgage on my own (it's only my income that fell during Covid). Frankly the world would have to end for all of that to happen

We have a few thousand tucked away. We will have to use some of it soon for fees for selling a property we own. Our car is 8 years old and H would like to replace it but I won't spend it on that until we have enough to buy another outright. I won't take out finance.
We will have a lot of outgoings for the next 18 months then we plan to pay off our mortgage over the next 7 years.
I'll still maintain our emergency fund over this time and add to it as I like the security of having it.
I save out of my personal money every month too whereas my H fritters his.

My friend told me about her partner the other day who earns 90k but has no savings, owns no property and has loads of debt. I'd far rather be on our 55k income with our financial knowhow and savings. You can earn a fortune but if you don't know how to manage it then it's very sad.

@LaurieFairyCake all of that may be true but the fact is you said you don't have a penny in savings and now you're in £7k debt. So maybe it would have paid off for you to have an emergency fund? Yes in fairness no one could have predicted Covid but life is unpredictable and not have any cash at all in savings leaves you very vulnerable. Banks cock up. People lose jobs. People get pay cuts. Especially at the moment, we are potentially on the brink of a global recession, could be property crashes, brexit could still screw us all over, everything is so unpredictable.

Well I disagree

I will pay off the overdraft now I'm not overpaying the mortgage in 3 months. And then I will put the mortgage back up to overpay.

I genuinely think paying my mortgage off in 8 years while interest rates are so low is the best for us

Currently, if you have you mortgage, it makes better financial sense to pay this off early rather than lots in savings.

Except that, if you lose your job and can’t pay the mortgage you risk losing your home.

@LaurieFairyCake I promise I'm not trying to pick a fight here but with the greatest respect, the vast majority of financial writers/advisers disagree with your financial management strategy. And you have sort of proven their point by ending up in £7k debt as a result of Covid. This is the definition of what an emergency fund is for. I'm finding it odd that despite this you are still completely convinced that there is no point in having an emergency fund.

Minty

That's true Minty but doesn't apply to us

bananallama

I'm 7k overdrawn because I was unable to contact the bank to stop overpaying my mortgage - it's indirectly due to Covid

And I disagree with what you say about financial writers - having money in savings at such low interest rates is NOT as good as paying off debt at higher interest rates (which is what a mortgage is)