Finance Question #8 - How much of an emergency fund do I need?
Your emergency fund is the easily accessible cash you have set aside for, you guessed right, an emergency. In an ideal case, you are stashing this cash in a separate savings account that acts as a barrier between your other savings, so that you don't mistakenly spend your emergency funds on a down payment for a shiny new car, or on a Carnival Cruise trip vacation.
As the name implies, this money is specifically for emergency use only, such as medical expenses, auto repairs, or job loss. If you have an investment portfolio make sure that your emergency cash is not tied up within your investments. You want your emergency cash to be kept safe from the ups and downs of the market.
But how much money is actually needed to furnish an emergency fund?
An emergency fund should not be gauged by a specific dollar amount, instead, you should base your emergency fund on a certain number of months. Therefore, everyone will have a different dollar amount. Each month worth of emergency funds should be based on your total monthly income, minus taxes; in other words, your take-home pay.
If you are strong and healthy with no dependents, you should have at least 3 months of emergency cash stashed away. If you have dependents, or if your income is commission-based/variable, you should have at least 6 months of emergency cash. Additionally, those who are older or retired should also aim for at least 6 months of emergency cash. If you feel like you need more than 6 months of emergency cash, then, by all means, have at it. But six months worth of monthly income is usually sufficient enough to survive the most common emergencies.
It takes discipline, time, and sacrifice to establish an emergency fund, but the peace of mind that comes with it is priceless.
Take charge of your money!
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Disclaimer: Hudson Wealth Management, LLC (HWM) is a FINRA registered investment adviser firm. Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and HWM's fee schedule. The information provided herein is for illustrative purposes only and does not constitute personalized investment advice, recommendations or solicitations to hold, buy or sell any investment or security of any kind. All images and return figures shown are for illustrative purposes only and are not actual customer or model returns. Past performance does not guarantee future results.?Prior articles in this Series
Managing Principal at Hudson Wealth Management
7 年Thank you for chiming in Emily. When you say the "fall of currency" are you referring to inflation?
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7 年A very intersting issue indded and are we prepared for the fall of currency and the alternative s my dear friends?