Emergency Fund and Pom Poms

So many of you ask me this question - do I invest all of my money? And to answer briefly: no, I don't. If you're interested in a more elaborate answer, keep reading.

At the beginning of the year I did budgeting videos and then I stopped. I'm mentioning it because I would talk about my, what I call Pom Poms in those videos. Here's what they are:

Pom Poms are for my short-term savings goals. When I started them, I had quite a few categories. Not as many as some proper budgeting aficionados out there but still, for my standards, quite a few. As anything else in my life, with time, they got simplified. Right now, I have only 6 categories - and to be honest, I still think that's too many. But hey ho, let's see what they are.

The biggest one on the list is by far my Emergency Fund

Then I have a House Pom Pom

General Pom Pom

Health Pom Pom

Christmas PomPom

and Holiday PomPom that I share with Edem.

I will go through each of those categories and just talk about why I have them and how much I do or hope to have in each.

Emergency fund. This is money for when life throws a curve ball. It could be a world pandemic. Or something not as catastrophic but nonetheless disruptive. There are many recommendations out there telling you how big an emergency fund should be. But the truth is - it's all up to you, your circumstances and sense of security. One of the viewers said he uses his credit card as an emergency fund - and that works for him fine. Somebody else will have £50k stashed away. Another person a year worth of their expenses. Different people, different needs.

So what do I keep for emergencies? Right now, I keep £5,000 in premium bonds and £5,000 in my business savings account. Why do I keep this money in two separate places? Because of tax. It made sense for me to leave some money in my business instead of drawing it and paying tax on it in this financial year.

I used to have a much bigger Emergency Fund but it changed when Edem moved in. It's easier to live with another person - as most of you probably know. So my sense of security increased and my Emergency Fund decreased haha. What is my goal here? Right now, 6 months of bare essential expenses - in case of lack of work - is enough in my eyes. The £10k I keep covers that easily. Anything more I'd find hard to justify, really. £12k would be ideal really, but £10k is good enough.

The next category on my list is House. Anybody who lives with their parents or rents doesn't need to worry about house repairs. As a house owner, I do. Right now, I keep £1,500 in there, with a goal of minimum £3,000 - this is the usual quote I get for changing a boiler with all radiators and I see it as a minimum house repair emergency. And yes, I know that I should be using a quote for installing a heat pump instead but there you go.

This fund is really rather bottomless. There's ALWAYS, and I mean ALWAYS something to repair or improve so I can easily see myself topping up this stash as I go along. I'm still not sure where I will live in a few years - whether here or sell up and move. So even though I'm tempted to change things here, logically it makes little sense for now. Ah, I got a quote for windows the other day and it was £12k or £8,5k if I ordered on the same day. It's sometimes funny to hear salesmen trying to get you to spend thousands of pounds buying on impulse. Well, I don't have £8,5k in my House Repairs Fund to spend on windows so all I was able to do was laugh and sleep well after. Honestly... just order today and end up in debt... no, thank you!

My next category is General Savings. I tried having different types of savings - gifts, holidays - but in the end it's best for me to keep it simple. One pot for all. If I want to go on holiday and have enough money here - then I use it to pay for holiday. Gifts usually are budgeted for in my monthly expenses so I noticed I don't need to save for them. But stuff like new clothes - which hardly ever happens - or anything fun like taking a week off and doing nothing (I'm a freelancer so I don't get any paid leave) or getting theatre tickets I spot and want to buy last minute. If you're curious, one of those tickets were for a show at Sadler’s Wells. Sadler’s Wells is a fantastic dance theatre in London. Anyway, sorry for digressing. My General Savings Pot holds 638 pounds at the moment. And again, it's bottomless. This is very much fun money and I intend to keep it that way.

Moving on... my next category is Health. It's empty at the moment. I'm usually OK with having about £500 to £1,000 pounds in there. I rely on NHS for health care but also make sure that I look after my health so that I'm not a burden on society in general. I hate the thought of being a burden. If I can avoid it, I'm prepared to work hard to do so. Right now, this pot is empty because it's the end of the year and I used up all my money - obviously. But I need to top it up soon. Especially now, that I'm working out with... a personal trainer. It's something I'd wanted to do for a long time and finally found a great personal trainer near where I live. So yes, this medical pot will need a top up before this year ends, just to be emptied right when the new year begins.

Which leads us to my Christmas Pom Pom - that is actually a seasonal one that will disappear in the new year. I know that many people encourage saving monthly for Christmas, all year long but that wouldn't work for me. Historically, I just spent Christmas on various ways - travelling and skipping it altogether, visiting my family, bringing my family over here, celebrating only with my boyfriend... and so on. I don't want to imagine in January each year how to spend December and plan for that. I just prefer having a General Savings Pom Pom and be more flexible. Of course, that works for me, but if you do know how you will spend your Christmas every year, then by all means, creating a Christmas fund at the beginning of a year makes perfect sense and go for it. So yeah, I created this PomPom a few weeks ago and it's a place to leave some of my earnings for this Christmas. Gifts, cards, food, all that jazz. Easy.

And lastly, my Holiday Pom Pom - that is joint with Edem. This is actually a kind of ghost of the holidays past. We were meant to go to New York in 2020 and had money for that, then that didn't happen because of Covid19 of course and we've been using that fund for short trips ever since. It's still there so there's still hope we will travel a bit further next year. I don't know about you but I just couldn't be bothered with all those tests and extra time at the airports so didn't travel abroad at all. But this will change in January as I'm taking my dear friend for a SPA break in the Austrian Alps. This is the place - if you're curious. All paid for already, the only thing outstanding are the airport transfers. Other than that, we're good to go. Anyway... the holiday PomPom shared with Edem currently has £192.92. It will definitely need topping up because this much won't take us anywhere far. Actually, how far could we go for this? Any ideas?

Now that you know all my savings, let me just add where I keep them.

My Emergency, House, General and Health PomPoms are in premium bonds. They're easy to access this way. One of my viewers asked how come I use premium bonds as an emergency fund when I pointed out in a video that it might be not a good idea because of the long withdrawal times. It was a great question. My situation changed and I noticed that I had no emergency, touch wood, that required me to access this money immediately. Even when I kept money for my garden wall repair in that account, the builders gave me 7 days to pay invoices which was enough for me to withdraw the money and make sure it hit their account in time. And I also started using a credit card. So any urgent purchases were covered by that and then paid back with my cashed in premium bonds later.

Of course I keep one half of my Emergency Fund in my business savings account - as I already mentioned.

Christmas and Joint Holiday Pom Poms are in my personal and joint monzo accounts as pots. Christmas because it's immediate and Joint Holiday because we have a joint mono account with Edem and it makes most sense - easier to manage and spend that money when we both have access to it.

And that is that. I wanted to write this post as so many viewers me if I invest all my savings. I don't. I live and I enjoy living. I make sure I have some money for emergency and the rest is saved for intentional spending. As you can see, some of these funds are empty or half-full and that's fine, things take time.

Hoarding money has never been my goal. And I wouldn't like to promote extreme frugality or extreme long-term investing while forgetting about now. It's good to have some peace of mind, to have some Pom Poms, and as long as you put your finances in a decent shape - and that shape will be unique for you and unique for me - you can relax. The other day I saw somebody calling the FIRE movement - financial independence, relax early. And I liked that. And on this positive note, I'm finishing this post. Hope you found it useful. I hope to write one next year and see what has changed. If you have any questions, as always, just leave a comment.