A successful long-term financial plan includes having a cash reserve or emergency fund. Reasons you need an emergency fund go beyond an unexpected job loss or medical expense. An emergency fund is protection against building up debt and weakening your financial security.
According to the Federal Reserve’s Economic Well-Being of U.S. Households report, 40% of people don’t have enough money to cover an unexpected $400 expense.*
If you are like the 40% without a “rainy day” fund, your first goal, after eliminating credit card debt, should be to build up your cash reserves to cover three to six months of living expenses. Once you’ve accomplished that, continue saving for future goals. Be sure you are still putting money aside for your retirement, maximizing any employer match available for your contributions.
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Once you have some cash built up, consider putting the money to work via investments. Laddering can be a great strategy. This simply means staggering investments so they mature at different times. This approach lets you take advantage of higher interest rates while still having access to funds.
Building your cash reserve may require discipline and cost cutting, but it’s an element of your budget you can’t afford to ignore. The old adage, “better safe than sorry” certainly applies here.
If you have any questions about building your cash reserves or how to ladder your investments, contact us today.
Related article: Getting the Most from Your Investments: A Laddering Strategy.
*Source: Federal Reserve Board Report on the Economic Well-Being of U.S. Households 2018