It’s essential to be prepared for whatever life throws at us, whether it’s a job loss or health or family emergencies that require time away from the workplace and a loss in income. How much do we really need saved up for this unfortunate rainy day? Some say three months, others recommend one year to be comfortable.
Be prepared financially for the unexpected
An emergency cash reserve will protect the family finances in cases of sudden unemployment. It will also provide an income if an earner takes ill while giving you the ability to prevent the loss of money through having to sell other investments. The cash fund will also enable you to avoid any tax penalties that may be incurred from having to remove money from a retirement account prematurely. Above all, it will reduce stress and prevent any marital strife, and it provides a much-needed cushion to get the family through the dark period.
An emergency cash account is essentially a savings account that has been topped up over the years, and having one in place with three to six months’ worth of living expenses is beneficial when they unexpected arises. Perhaps you have saved up and all the cash is in one place gathering only a modest amount of interest?
Saving six months to a year of expenses is recommended
A financial adviser can provide advice and recommendations on the most appropriate products for savings. If you run your own business it is best to speak with your Gloucester Accountants such as https://www.randall-payne.co.uk/ who will be able to talk you through the amount of money that you should ideally have set aside in your business to plan for any eventuality.
According to Forbes, industry studies illustrate that financial advice can add around 1.5% to 4% to account growth over extended periods.
As a rule, you should have enough to cover around three to four months of basic household expenses. That’s only for an individual. A family is different as there are more dependents; it’s recommended that there should be a minimum of six months’ worth of expenses in the pot in that case. However, if you are a higher earner, it’s a good idea to save roughly 12 months worth of expenses. That way, you will have a comfortable cushion should an unforeseen situation arise that requires access to emergency money.