Today I’m going to highlight some of the informations that could be useful for those that want to cover those emergencies that do tend to happen to anyone of us.
Recently, my reader asked me, how much cash reserves should one always have on account. Well, according to my experience, not everyone should have the same cash reserves. People have different needs that are proportional to income they have. In particular, It depending on these four circumstances:
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1. If you have a regular income, the percentage of your annual income you should save for your emergency fund is 10%.
2. If your job don’t guarantee a regular income, the percentage of your annual income you should save for your emergency fund is 20%.
3. If you are retired, the percentage of your annual income you should save for your emergency fund is 30%.
4. If you have a problem of cover bills and rent in the event that you losing your job, the percentage of your annual income you should save for your emergency fund is 40%. Of course, you’ll should have it saved before you are in danger of losing your job.
If you think that you have a very low risk of income disruption, then you no need an emergency fund of 40% of your income as someone else.
Of course, the first thing to do is to take a minimum base liquidity or cash reserves in order to be safe agains any problems. I read recently that according to financial gurus you should have cash reservers equal to 3 to 6 months of income.
In my view, the 3-6 months of expenses means you have more work and many people just don’t do that. I think have cash reservers equal to 1-2 month of income is ideal. This fund should be used for instance when your car breaks down or you have an problem such as, house repairs, emergency trips, and so on.
With this economic crisis I’m trying to have at least 4 months of income in a savings account for the home and other problems. Hopefully it is never needed for emergency, but if one of us have problem we can still survive, we shouldn’t be worried if the money is there.
