How much cash do you need in your emergency fund? Although advisors agree that having an emergency fund is important, there’s no consensus about how much cash you should have set aside, with every stage of life requiring a different amount of cash in the bank. Here’s what financial experts recommend, from fresh graduates to retirees.
You might be wondering how much cash you actually need to have on hand if the stock market volatility, high inflation, and rising interest rates are making you feel shaky.
However, according to financial experts, the ideal amount to keep in your emergency fund depends on your family’s demands and condition.
However, it is understandable why investors are concerned about savings given that two-thirds of Americans are concerned about a recession.
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According to a June study from Bankrate, more than half of Americans are now worried about their amount of emergency funds, up from 44% in 2020.
According to a study by Bankrate, roughly one-third of Americans have savings accounts with less than three months’ worth of spending, and almost one-quarter have no emergency fund.
Although historically low returns have made cash less desirable, this may be changing as interest rates rise. And according to experts, the peace of mind that savings gives is valuable.
According to financial gurus, you need the following amount of cash saved up at various stages of your career.
Dual-earner household: Set away enough money for at least three months’ worth of spending.
According to Christopher Lyman, a certified financial planner at Allied Financial Advisors in Newtown, Pennsylvania, the standard suggestion for dual-income families is savings equal to three to six months’ worth of living expenditures. The justification is that the family can still cover costs even if one person loses their job since there are other sources of income.
Individuals: Save up to six months.
However, Lyman noted that families with a single earner would benefit from increasing their savings to cover six to nine months’ worth of spending.
Some financial experts advise having larger cash reserves for both single-earner households and dual-income households so that there are “more choices” available in the event of a job loss. Finding a new job may not be easy during a recession because of increased unemployment rates that are often associated with them. Keep 12 to 24 months’ worth of spending in cash, advises Catherine Valega, a CFP and wealth counsellor with Green Bee Advisory in Winchester, Massachusetts.
Suze Orman, a best-selling author and personal financial guru, recently told CNBC that she advocates for having eight to twelve months’ worth of spending in savings. She explained, “If you lose your work or decide to leave your career, that allows you the opportunity to continue paying your expenses while you’re figuring out what you want to do with your life.
Entrepreneurs, set aside one year’s worth of company costs.
Lyman advises entrepreneurs and small company owners to strive to set away one year’s worth of business costs since there is increased economic uncertainty.
Many of our company owner clients were prevented from closing down by following this advise, he claimed.