How do you size an emergency reserve before buying?

Down payment saved and keen to buy? Ask one question first: if income stopped for three months, could the mortgage and living costs still be paid? This piece explains how to estimate an emergency reserve and keep it separate from the down payment.

1. What is an emergency reserve, and how is it different from a down payment?

An emergency reserve is money set aside for a shock: job loss, a pay cut while ill, an urgent family need, or a sudden building repair. Its job is to keep daily life and the mortgage payment going — not to bet on prices.

A down payment is money reserved to complete a purchase: deposit, stamp duty, legal fees, fit-out. If the whole cash pile goes into that, there is no buffer once the keys arrive.

• ▸Money needed for a deposit in the next 1–3 years: low volatility and easy to withdraw
• ▸Count the emergency reserve and the down payment as two separate sums
• ▸Long-term investing is only for money that can sit untouched for 10 years or more

2. How is it usually estimated? (education, not a hard rule)

Common education guidance is about 3–12 months of expenses, depending on income stability. Steadier or dual incomes often start around 3–6 months; self-employed, commission-based, or single-income households often lean toward 6–12.

• ▸One month of spending includes mortgage/rent, management fees, utilities, food, transport, insurance, minimum debt payments, care costs, and a little for sudden repairs
• ▸Illustration only: about HK$35,000 a month → about HK$210,000 for six months
• ▸A flat is not liquid. It is not the reserve

3. Two common mistakes around a purchase

• ▸Mistake 1: using all liquid cash as the down payment
• ▸Mistake 2: parking the reserve in a high-volatility asset in search of return

A steadier education sequence: write down the timetable and full cash needed to buy → set aside the reserve first → use what remains as the down-payment savings → only then consider long-term investing with money still spare → after buying, recalculate cash flow.

4. Look at the reserve and a mortgage stress check together

Banks apply their own credit policy. The education question remains: if rates were another 2–3 percentage points higher, or income 30% lower, could the payment still be made? Would the reserve last while looking for work? Leverage makes it easier to buy, and it also magnifies what happens when there is no buffer.

5. A short checklist

• ▸Keep three pots: reserve, down payment, long term
• ▸Write down one month of spending
• ▸Include tax, fees and fitting-out in the cash needed to buy
• ▸Run your own higher-rate and lower-income illustration
• ▸A flat is not an instant cash reserve
• ▸Use licensed firms only (HKMA / SFC registers)