S/O: what is a good "cushion" for you?

[fieryred33143]

S/O=spin off

In the financial question thread, there was a comment on having a secure cushion in case of emergencies.

I'm trying to define what a good cushion would be for us. What is your definition of a good cushion and how did you come up with that definition?

Examples:

$1,000 to use for emergencies
Enough to pay bills for a month (or 2 or 7)
Set aside a % of paycheck

If you don't mind, could you also state whether you are paying down some debt (outside of mortgage)? I would imagine that those paying off debt have a different idea of a safety cushion than those who are debt free.

 

[somethingshiny]

Wow, as a PSer, when I saw "cushion" I came looking for a good cushion stone!!

But, to answer the REAL question, we try to keep a cushion of 2 months mortgage payments. We don't have other debt. I'd like to have a cushion of 2 months of all bills.

 

[elrohwen]

We usually try to keep a 5-6 month cushion around and to me that seems pretty good. Hopefully we will extend it out to a year eventually. I also keep $500-1000 in our checking account after paying bills, which is the cushion in case of extra expenses that month, or if DH needs to take out extra money (and forgets to check the balance or tell me, which he has done, causing an overdraft fee) or whatever. Makes me nervous for the balance to get too low, since it takes a good 4-5 days to transfer money back from our savings account if needed.

Our only debt is DH's student loans. At the moment we're paying them off monthly on the regular plan with no intentions of anything else. We could put all of our money towards them right now and put off a house for a year, and yes we would save a little cash doing that, but the amount we would save isn't worth it, to us, to put off the house for another year. We just treat the loan payment as another bill to be paid every month.

 

[steph72276]

No debt except the mortgage. 12 months of expenses (not luxury, just necessities) in a money market not to be touched. We would just do 6 months if we were a two income family. Plus a couple of thousand set aside for unexpected things like the ac going out.

 

[soocool]

Used to be a cushion should cover 3 months worth of expenses plus you should always have an emergency fund used solely for that purpose. But with the economy today perhaps at least 6 months would be better.

 

[Jennifer W]

No debt. I had a fair bit of CC debt, a bank loan and we had a mortgage between us. We paid these off as a priority.

Good pensions. Big priority, but easy for us, since we both have occupational pension schemes that pay index linked based on our final salaries and not tied to the stock market. I really, really don't want to live in poverty when I'm older. Not going to be super rich, but we will be comfortable.

After that, I had two years' salary in low risk investments. I used around a year's worth putting myself through law school and extending my maternity leave, although I eked it out to two years by living very quietly. So there's about a year left and I'm happy at that. I'll add a little to it, but I feel like we can relax a bit now. We have enough to cover big expenses like home repairs, car etc.

Neither of us are really big savers or thrifty people naturally, we'd rather enjoy what we have now. It took us a while to get here and we didn't enjoy it. I will save some money for DD's future, but where we live college / university tuition is free, so it won't be a vast amount. Enough for a nice deposit on a home maybe, or a little extra for something special.

Jen

 

[lyra]

Used to be a cushion should cover 3 months worth of expenses plus you should always have an emergency fund used solely for that purpose. But with the economy today perhaps at least 6 months would be better.

I totally agree. We had the typical 6 months, but unfortunately my husband was unemployed for 18 months during a particular 3 year period! This wiped out our savings and led us into greater debt. We had to sell our house and were barely able to afford a much downsized place in a neighbourhood we hated when he finally got another job at *half* his former pay. It's taken 8 years to dig out *mostly*, but we still have some debt. This was the roughest period of our married life obviously. Took out what we had saved for pension too, so playing catch-up is extremely hard. In this economy, 6 months should be the minimum IMO.

 

[Sparkalin]

The only cushion I have is the one on my couch.

Linda

 

[NewEnglandLady]

Used to be a cushion should cover 3 months worth of expenses plus you should always have an emergency fund used solely for that purpose. But with the economy today perhaps at least 6 months would be better.

I totally agree. We had the typical 6 months, but unfortunately my husband was unemployed for 18 months during a particular 3 year period! This wiped out our savings and led us into greater debt. We had to sell our house and were barely able to afford a much downsized place in a neighbourhood we hated when he finally got another job at *half* his former pay. It's taken 8 years to dig out *mostly*, but we still have some debt. This was the roughest period of our married life obviously. Took out what we had saved for pension too, so playing catch-up is extremely hard. In this economy, 6 months should be the minimum IMO.

Lyra, I'm so sorry that happened to you! I'm glad you are digging your way out, but I have no doubt that was a really rough time for both of you.

We are debt free except for the mortgage. Prior to buying the house everything was put into one big savings "pot" and we need to sort it out. 6 months' worth of expenses is our "emergency fund", but right now it's mixed in with all of our other savings for travel, a new (used) vehicle, home improvements, etc. So I guess we could call it one huge emergency fund (which would make me happy!) but in reality we just merged our emergency fund with savings. I prefer to keep them separate, but I've gotten lazy about separating them after we closed on the house. I do fear that 6 months is not enough, which is why I like having a bigger cushion right now.

 

[packrat]

We had a cushion a few times, and each time it got wiped out plus more, so we ended up farther behind than we were. If Murphy would take his Law and truck on down the road we might be able to get somewhere. JD's got some in his retirement thing at work-he contributes what the company will match. And we have life insurance we can cash in if need be when we're older.

 

[Sabine]

Ds has a stable job (in the military), so for us, the least I feel comfortable with is enough money to cover ALL our bills (rent, cars, student loan payments, food, gas, and utilities) for at least 3 months.

After keeping that much around, I'd like to do something else with the rest of our savings.

However, we're also saving for a house, so instead of investing the rest, we have it in a regular ol savings acct. because we plan to use it within the next few years.

 

[geckodani]

We have no debt, including a mortgage. That said, we've had little extra the past 5 years while DH was getting through law school. He's got a good enough job that we've been able to save a nice chunk for a down payment on a house. This will pretty much wipe the savings account out. That said, I try to always have at LEAST 1K on hand, even when we were shoestringing it. That can cover a lot of stupidity. When we've got our house, I'd like to always have no less than 3K (seems like enough to replace a dead appliance etc.). Ultimately I'd love to have 6 months of expenses saved up, but I see that goal faaaar in the future.

Also, we have a rule that we can only have one purchase financed at a time. Even when we eventually get a house and need furniture, I'm going to stick to that rule. Only 1 purchase financed. Preferrably at 0%.

 

[rhbgirl24]

We try and maintain a 3 month cushion of all our bills. No more real credit card debt, but we both do have student loans, our mortgage, utilities and whatnot.

We also keep about 2K extra in the checking account for anything that we may need thats more than normal in a given month. Also a good buffer just in case. We rarely touch the savings, if something comes up we usually take it from this buffer and then replace as soon as we can, which is usually in a month or two.....

 

[ForteKitty]

I have saved enough to live for 3 years if i ever lose my job, but that means strictly living, no vacations or buying "stuff". I dont have any debt or student loans tho, and no kids. paid cash for my car when i bought it 5 years ago.

Retirement-
30% of my gross income goes directly into retirement and to supplement my County Pension (18% + 12%).
I also contribute $5000 into my IRA each year.

Savings-
50% of my net goes into savings each month. My tax return goes directly into savings.

Vacation fund-
15% of my net goes into a vacation fund.

Spending-
35% of my net is spent on everything else.

ETA: my friends think i'm crazy, but i like having money in case of emergencies!

 

[Rockdiamond]

Are we talking Chunky Cushion, or Crushed Ice Cushion?

 

[dreamer_dachsie]

For me, safety means having about $5k in an accessible savings account (we are not there yet after the expenses of buying our home last year) and also access to credit in case of emergencies, so we have a line of credit we do not touch that has $5k available and also a credit card with zero balance that would allow us to access another 10k if needed.

We do have debt from some recent home renos and paying that (and the mortgage later) takes priority over having money sitting in an account earing 1% interest, since the interest rate on the debt is higher than we would earn on investements. Therefore, we prefer to pay those major debts down and have access to credit in an emergency at this point in our lives.

I should add we live in a country where if either of us were unemployed we could collect employment insurance from the gov't for a year that would cover our very basic expenses, and I have a very secure job. So we are perhaps less concerned than we would be if we were in different industries or a country without social assistance.

 

[MustangGal]

We have about 6 months of expenses saved. After DH got laid off when I was 7 months preggo I've insisted on keeping that cushion. I also keep 5K in a savings account for emergencies, future vacation, etc. Our only debt is the mortgage and my car loan, which is a small-ish one with 1% interest.

We don't really put too much extra into our regular savings, just a good chunk into our 401(k)s at work, and a little bit straight into an account for the kid.

We don't make a lot of money, but we try to be smart with what we have.

 

[yennyfire]

We have no debt other than our mortgage, and we hope to have our 30 year mortgage paid off in about 12 years (we make double payments to to principal each month). We max out hubby's 401k and put any tax refund in savings. We own both of our cars, so we only have "typical" monthly bills.

When we both worked, my entire income went to savings/investment which was awesome, since we've been paying for private pre-school for two kids for the past couple of years and haven't been able to save much at all.

Now that kid #1 is in a public kindergarten, we are sending that $$ to our financial planner each month. He has 3 months of our expenses in a fund that we can access without penalty. We also have 3 months available in our savings acct. I don't know if that's enough, as we have several friends who were without jobs for more than 6 months....it's definitely a delicate balancing act!

 

[dragonfly411]

SO and I recently hit a financial low. Our plan now is to pay off all debt (including trying to get this hospital debt he somehow accrued gone), and save. I plan on giving myself a 6 month buffer after I get my debt payed off.

 

[fieryred33143]

All of you people talking about diamonds. You would think this is a diamond forum or something

Lyra-Like NEL I am also very sorry you experienced that and am glad you are working your way out of it!

Thank you all for the great tips! We're putting together another financial plan that will include purchasing a home so we wanted some ideas on what we should set aside for "emergency" purposes.

 

[Jennifer W]

Are we talking Chunky Cushion, or Crushed Ice Cushion?

If it wasn't for your darned cushions, I'd have way, way more in my savings account.

 

[elrohwen]

I forgot to mention that our house savings fund and emergency fund are currently the same thing. When we're ready to buy a house next year, I'm assuming it will take at least a few months (like 6-12 possibly), and in that few months I hope to rebuild our 6 month cushion again before buying. We're able to save a lot while we're renting, and if we buy before building up the cushion it will take a lot more effort to rebuild (I assume we'll want to spend all of our savings on fixing up the house, rather than squirreling it away like we're doing now).

I also have one extra savings account that earns a magical 5%! Unfortunately I am only allowed to deposit $100 in per month, plus it deposits $1 in every time I use my debit card (which is rarely, since I use the credit card to get the rewards). Still, it provides overdraft protection (the reason I got it), and earns lots of interest (only the first year though), and I'm thinking it might become my fun diamond fund in a few years once there's some serious cash in there.

 

[kama_s]

For me, I would require a minimum of 6 months expenses (~30k) in hard, liquid cash. Not stuck in stock or in home equity, plain easily withdrawable money. We have a separate high interest savings account for money we are saving up for a house. If push comes to shove, I am sure we can extend the 30k to last us close to a year, but this was based on current expenses and our lifestyle is far from frugal. Our major expense is rent and food, so it would just mean moving out to a more affordable place and stop eating out as often as we do.

To answer your second part: we don't have any debt or mortgage.

 

[zoebartlett]

I'm really surprised at how many people are debt-free or close to it.

My husband was laid off for 6 months a while ago, so that affected our situation somewhat. We don't have the cushion we'd ultimately like yet but we're working on it.

 

[JSM]

I would like to have 6 months of expenses. Unfortunately we are still in debt from last year's unemployment stint, and have student loans to pay, so it's not going to happen for quite some time!

 

[onedrop]

I'm really surprised at how many people are debt-free or close to it.

Zoe: I agree with you on this.^^

Though DH and I have some debt, we also have at least three months of emergency money available. We are working toward having six months of bills covered for "just in case" while at the same time paying down the debt. I also like to keep at least $1000 on hand for things that might come up along the way. We are far from being in a perfect financial situation, but we are working on it.

 

[Dancing Fire]

I have saved enough to live for 3 years if i ever lose my job, but that means strictly living, no vacations or buying "stuff". I dont have any debt or student loans tho, and no kids. paid cash for my car when i bought it 5 years ago.

Retirement-
30% of my gross income goes directly into retirement and to supplement my County Pension (18% + 12%).
I also contribute $5000 into my IRA each year.

Savings-
50% of my net goes into savings each month. My tax return goes directly into savings.

Vacation fund-
15% of my net goes into a vacation fund.

Spending-
35% of my net is spent on everything else.

ETA: my friends think i'm crazy, but i like having money in case of emergencies!

FK...excellent plan . will you marry me?? ...

 

[Dancing Fire]

been debt free since 2004 after we paid off the house.now,only if i can stop losing my A$$ in the stock market....

 

[dreamer_dachsie]

I'm really surprised at how many people are debt-free or close to it.

Zoe: I agree with you on this.^^

Though DH and I have some debt, we also have at least three months of emergency money available. We are working toward having six months of bills covered for "just in case" while at the same time paying down the debt. I also like to keep at least $1000 on hand for things that might come up along the way. We are far from being in a perfect financial situation, but we are working on it.

I dunno, it is a forum for people with lots of disposable income to an extent who can afford luxuries like diamonds. Probably attracts a certain type. And the people in lots of debt don't offer advice on financial buffers!

 

[Haven]

I was really excited to talk about *cushions* cushions. You know, the kind that brought me to this site in the first place. Anyway . . .

A good cushion for us is 6 months of expenses in a savings account. We have a mortgage, and now I have a small amount of student loans. No other debt, though. My goal is to pay off our mortgage by 2020, so that's what I'm currently working towards.

Otherwise, we keep extra money in our checking account for vacations and those sorts of things. We don't divide up the money into different accounts, it would be too difficult for me to manage, that way. Just savings and checking.