How many months of essential costs should your savings cover?

Finium may show you a line like this under Needs attention:

Your money covers 0.1 months of essential costs.

This article explains what the figure means, where the usual guideline comes from, and how Finium works it out.

What the figure means

It answers one question: if your income stopped today, how long could your money pay for your essential costs?

• Essential costs are what you spend on the things you cannot go without: rent or mortgage, energy, food, insurance, loan repayments. Finium works them out from your own transactions, using the categories you have marked essential.
• Your money is what you could reach quickly: your everyday accounts and easy-access savings.

So "0.1 months" means your accessible money would cover about three days of essential costs. "4.0 months" would mean about four months.

The guideline

MoneyHelper, the free guidance service backed by the UK government, puts it this way:

A good rule of thumb to give yourself a solid financial cushion is to have three to six months' essential outgoings available in an instant access savings account.

Its example: if your essential costs are £1,000 a month, that is £3,000 to £6,000.

MoneyHelper also says that not everyone can save that much at once, that even one month's income saved protects against some shocks, and that saving a regular amount you can afford matters more than the target itself.

Source: MoneyHelper — How much to save for an emergency.

What Finium compares it with

You choose the number of months, in Settings › Space, under "Money you keep for emergencies". Finium compares your figure with it and shows the line under Needs attention when you are below it or close to it. Open the line to see how much that many months of your essential costs comes to.

Until you choose, Finium compares your savings with three months, the low end of the guideline above.

The right number depends on you. A household with one income, variable pay or children may want more months; a household with two secure incomes may choose fewer. Finium shows the figure; the choice is yours.

Where the money should be

The guideline is about money you can reach within days or weeks without a penalty: a current account, or an instant-access savings account. Money in a pension, a fixed-term bond or investments is not counted, because you may not be able to reach it quickly, or without losing value.

If nothing is marked essential

Finium can only separate essential costs from the rest if your categories say which are which. Where none of them do, it counts all of your spending as essential and tells you so under the figure. Marking your essential categories makes the figure a truer one.