How much saving is enough for your raining days ?

[RetiredBy50]

Hello all.

What do people think about how much fund should be reserved for raining days.

For example, consider a couple with joint annual income $85000 (ie. $5000 per month take home) with 2 young children. Assume that the couple has life insurenace and income protection plan insurance.

After having done the annual tax return , the figures would look like this.

Monthly Expense : $2000 per month

Investmnet Expense
(+ve geared & -ve geared IPs) : $1500 per month

Saving : $1500 per month

Total Loan Amount : $1.25 million
Total Asset Value (including PPOR) : $2 million
Fund Reserved for Raining Days : $200 K

Do people think that the monthly saving $1500 per month and reserved fund $200 K is suitable for raining days.

 

[Harris]

I was doing some searches ont he same topic..when I found this very interesting thread

http://www.somersoft.com/forums/showthread.php?s=&threadid=6759

You may fond most of your answers there

Cheers,

 

[duncan_m]

Originally posted by RetiredBy50

Do people think that the monthly saving $1500 per month and reserved fund $200 K is suitable for raining days.

Hi!

Great topic!

$200K is an ENORMOUS reserve.. far too high.. With the right insurances which you have (except for maybe Critical Illness Cover) I feel you only need around $40K.. Take out $160K and go get some more houses.

One partner can always work and your expense profile is low enough that you dont need a job as a rocket scientist to cover it..

And that $1500pm your saving.. go get some more houses with it!

And your reserve doesnt need to be in cash.. use a LOC, is there any fat in your rental income that could service additional debt if something nasty happened? or are you cashflow negative?

Dont forget that the Govt is also remarkably generous when you have kids and no income..

 

[RetiredBy50]

Harris and duncan_m

Thanks very much for your responses.

$200 K reserve is actually in LOC account.

I will definitely go and get some more houses .

If I can find +ve geared ones that is fine.
Otherwise, I may have to be after -ve geared ones.

In that case, how much saving I should keep monthly ?

Will $1000 per mont or $500 per month ?

What do people think ?

Thanks

 

[Aceyducey]

Good question, but hard to answer as everyone's risk tolerance varies.

Given that property investors are more risk adverse than say, future traders and the illiquidity of property can make it somewhat hard to get cash in a crisis, I'd suggest that a reserve of 3 months income would give you enough room to live & liquidate assets if you can't source an alternate income in that time.

Keep in mind that this should also include a contingency for the fact that you have to pay the full negative gearing outgoing on held properties in this period.

The amount may be built into your job anyway (if you're salaried on relatively high amounts, 3 months+ termination pay is not uncommon) or via redundency payouts.

I wouldn't rely on these potential payouts as the three months amount however - treat them as a nice bonus to have if the situation occurs (that can be wacked on the mortgage or used to pay off any debts you just incurred believing the job was secure).

And the amount can be kept in an offset account against a mortgage so it is working for you at all times....

I'd be less inclined to use an amount stored in an LOC as the bank giveth & the bank can taketh away.....sure the risk is low, but why not use the LOC for property & use your savings as security income instead - that way if the bank calls in the LOC it costs you the property (which covers the LOC amount) but you still have your living cash free & clear.

Just make sure that the amount can be rapidly accessed when you need it!

If you're highly risk adverse or concerned over replacing your income in a 3 month period, then think about how much of a period you would require to replace an income - and keep in mind that Centrelink may have to process you via it's Complex Claims unit (normal case managers don't understand investment structures) & this can take a number of months to resolve.....

When I was made redundent in late 2001, despite a good payout I did go & apply for the dole just-in-case & it took more than 3 months for them to assess whether I was eligible

Subsequently I decided not to go back to work anyway & was on the dole for only a few months, but I believe it's always wise to apply.

Cheers,

Aceyducey

 

[Macca]

Yes, I would think that you are being ultra conservative.

I would be inclined to calculate 1 year's expenses, as if you were both unemployed, and leave that in my LOC as my buffer.

As you accumulate savings you can be snooping around for your next investment.

 

[duncan_m]

Originally posted by RetiredBy50
Harris and duncan_m
Will $1000 per mont or $500 per month ?
Thanks

I'll go out on a limb publically here

I dont save a red cent each month..

We have a very good portfolio so thats our savings. We have money available in an emergency LOC and some cash reserves.. But we're also enjoying a nice lifestyle in the 'here and now' confident that our portfolio will deliver the long term growth we need.

So.. given what you've already achieved, dont feel obliged to go even further and save each month (other than to fund holidays etc). As equity becomes available keep on expanding your portfolio (with smart purchases)..

And spend that $1000pm on yourself, wife and kids

Duncan.

 

[RetiredBy50]

Thanks very much guys.

You guys are terrafic.

 

[Mr. Fabulous]

Duncan,
A serious investor that actually spends money on themselves? Now I've seen everything!

Mark
'no hat, some cattle (but the herd is growing)'

 

[Aceyducey]

Originally posted by Mark Laszczuk
Duncan,
A serious investor that actually spends money on themselves? Now I've seen everything!

Apparently he even lashes out on brussel sprouts occasionally.

Cheers,

Aceyducey

 

[duncan_m]

Originally posted by Aceyducey
Apparently he even lashes out on brussel sprouts occasionally.

Cheers,

Aceyducey

Oh man.. you are one sick puppy.. who in the hell eats brussel sprouts?? God they are the most disgusting food I've ever tried.. I think they are worse than kidney and liver..

 

[JoannaK]

there is nothing worse than kidney and liver.....

i'll eat brussell sprouts any day

 

[geoffw]

Do you know the difference between boogers and brussels sprouts?

You just can't get kids to eat brussels sprouts!

 

[brains]

I dislike brussel sprouts intensely. Reminds me of something. Years ago my wife (my then girlfriend) and i went out to dinner and she was having a go at me me saying "you always order the same thing for dinner, cant you be more daring"?

So i ordered garlic lambs brains and ate them in front of her (shes a vegetarian).....HAHAHA.!!...not too bad actually...bit spongy tho.

And no..thats not why im called brains

To ge back on subject i reckon one years expenses is adequate and im not much of a saver myself, isnt that what accumulating assets is for?

 

[Shaggygirl]

Obviously you boys have never had these foods prepared properly.

Brussell sprouts chosen correctly (small and young) and cooked properly are lovely and sweet. If you're getting bitter ones, sack your chef. Have them with a great sauce (hollendaise is best).

As for the others, again it's all in the preparation. You don't know what you're missing out on. Come 'round to my Mum's some time.



Shaggygirl

 

[bundy1964]

Hi Shaggygirl

Does that suggest your not a good cook

One of my favoured eating places I don't even have to order now

None of that yucky green stuff for me thanks including brocoli

bundy

 

[Shaggygirl]

I can cook pretty well, I just have a limited range. Plus I have been known to have a disaster or two (like everyone else).

My mother though is something else. she's fantastic. She should have been a chef. She even does the pretty arranging of food. Maybe that's why I've never taken to it - I just can't compete!

I'm better at the eating

Shaggygirl

 

[Aceyducey]

Your mum should start a restaurant then - shame to waste a good skill!

Cheers,

Aceyducey