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Financial samurai says you're suppose to have 6 months of security set aside for emergency. How accurate is that realistically? Should you be left with 6 months or more of security after buying a house?
Well, I don't know what means "financial samurai", but you need to consider your own situation.
Are you a corporate employee in a field like "marketing" where there are limited qualifications and you can be laid off as the first step in making the numbers look better? Is your employer in a condition where they might well be subject to sale to a private equity firm (first thing private equity does is to fire a whole bunch of people)? Are you someone without obvious certificated qualifications?
Or, on the other hand, are you in a position like that of a dentist with a well-established practice in a prosperous suburb?
Some people really, really need to have far more than six months of expenses set aside. Others may be safe with considerably less than that. It really needs to depend on your risk of suddenly being without income, and how quickly you could realistically resume getting income.
Other factors will weigh in, like does someone in your family have expensive chronic medical conditions for which you could be denied coverage?
Well, I don't know what means "financial samurai", but you need to consider your own situation.
Are you a corporate employee in a field like "marketing" where there are limited qualifications and you can be laid off as the first step in making the numbers look better? Is your employer in a condition where they might well be subject to sale to a private equity firm (first thing private equity does is to fire a whole bunch of people)? Are you someone without obvious certificated qualifications?
Or, on the other hand, are you in a position like that of a dentist with a well-established practice in a prosperous suburb?
Some people really, really need to have far more than six months of expenses set aside. Others may be safe with considerably less than that. It really needs to depend on your risk of suddenly being without income, and how quickly you could realistically resume getting income.
Other factors will weigh in, like does someone in your family have expensive chronic medical conditions for which you could be denied coverage?
Thank you for the detailed response. Finding another job will not be an issue for me and no chronic illnesses here either. Thank God. But still I just don't want any stone left unturned when it comes to long term commitment such as buying a house. Even with all those possibilities there is always a slight chance of what if. I just want to make sure I am well prepared in advance for any unforeseen circumstances that may arise.
Last edited by Capitalprophets; 01-31-2019 at 08:31 PM..
Other factors include your age and if you have family who can bail you out in an emergency. Younger people may have more “job resilience”. Family funds and inheritance can be game changers.
OP, watch the tunnel vision on thinking thinking chronic illness or unemployment are the only crisises. I need another cup of coffee to think of the mayhem that can strike, but my observation has been emergencies are typically unpredictable events, and unemployment and chronic illness compound that event and make it catastrophic. Over the span of a 30 year career, I've come across quite a number of letters explaining finances gone wrong. Insurance can kick in, but few coverages are immediate. By this I mean, disability takes time to kick in. Or, ever been injured in an auto accident and need to be seen by a specialist? Immediately? Amazing how many will not accept insurance for an auto accident or work accident. Paying cash for an ortho and MRI can involve some pennies. Hurricane? Tornado? Kid in jail? (That was one letter). Or, it could simply be an HVAC that dies, or like myself, bats in the attic (I live 2 blocks off the Occoquan River, tons of mosquitos and my bats were a protected species and had to be live-captured and relocated. The insulation was a hazmat removal. Oh and the cost of fixing their entrance. 8K from start to finish, uninsured).
No one is saying it has to be cash in the bank (but that is best), it can be in retirement funds, if you can get to it if really needed. In a true emergency, the reserve savings act as a bridge to get you back on your feet.
Financial samurai says you're suppose to have 6 months of security set aside for emergency. How accurate is that realistically? Should you be left with 6 months or more of security after buying a house?
Considering that you’re looking to buy overpriced new construction in an extremely far flung suburb - in one of the most overpriced markets out there, I’d suggest a lot more than six months - you’re going to be stuck there for a long time.
Don’t discount the inevitable hailstorm that will require you to pony up 2% of your home price to replace your roof, and at least another 2-3% of the home price to replace all the crap in your poor quality construction home that breaks.
According to almost all the “advice” I’ve ever seen, our house purchase should have blown up in our faces. Instead it was best thing we ever did and allowed us to build a firm financial footing. We’ve used adjustable rate mortgages, riding the rates down along with payments.
I’d buy the house and then build my savings back up. If something happened like a new fridge, or washer, I’d negotiate a better rate in a credit card and pay off in a couple of months.
Yeah I have to agree. One time, in the past, I was very illiquid and I had literally about 2 months of savings in the bank. It was not a good situation, very stressful, and I started liquidating some personal assets just to feed the fire so to speak. Ideally, as is the situation right now, I'd like at least 2-3 years of savings so that if I literally didn't make anything for the next 3 years, I'd only run into problems at the end of that. Plenty of time to adjust spending downward, figure something out, etc.
I think it's unrealistic advice, depending on where you are in your career and location. A lot of financial advice is unrealistic for most people at various times in their lives. The typical person/couple just starting out isn't going to have six months saved up simply because they won't be making enough for long enough to do it. Same thing goes with buying a house. While I firmly believe you shouldn't buy more house than you can afford, given rent is as high or higher than a mortgage payment in many places you aren't saving money by renting unless you plan to move in short order (there's a lot that goes into the calculation on the break even point and everyone is in a different situation).
Much like when my wife and I bought our first house. We got a lot of advice from folks, esp her parents, that was based on their financial situation, and the cost their house when they were buying 30 years before. You really need to look at your personal situation.
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Solly says — Be nice!
