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How much cash is enough?

When considering your and your family’s cash reserve needs, how much cash is enough? Do we keep enough reserves to cover basic fixed expenses and food? Or do we keep reserves that will allow us to keep our current lifestyle without cutting back? Scorched earth or no big deal? These reserves, after all, are mostly labeled emergency funds, so technically, we should base our reserve calculations around if there were real emergencies or hardships in our lives, but that can differ broadly between households. Therefore, I do not believe this is a one size fits all calculation.

Many well-known financial pros have differing opinions. Ramsey Solutions gives a range of 3-6 months of household expenses unless you are a commissioned employee, self-employed, or have extenuating circumstances. Suze Ormond recommends eight months of expenses for an emergency fund. Some pros break it down further by giving additional emergency reserve category recommendations. All seem to agree that three months is the bare minimum, as do I.

The decision about how much cash to keep around is very personal, and when counseling clients, I analyze many different factors before giving my recommendation. You need to consider not only the security and stability of your job but the age of your children and their ability to help contribute in the event of hardship. Also consider these factors:

  • If your children are in college

  • How many people and/or services you have on the household payroll

  • How many pets you are feeding

  • The age and condition of your home

  • The general health of members of your financial household

For example, if your kids are older and able to work, then if your family faces hardship, they can certainly work to contribute. If your family members are generally healthy, you would need fewer reserves for medical than if one or more family members had medical issues that increase your out-of-pocket expenses. If you have pets and are not prepared to make tough decisions surrounding their care in an emergency, you may want to increase reserves for your pets. It is important to look at your family and household situation on a more global scale when financial and emergency planning.

Aside from the primary emergency fund that is meant to provide for your family in the event of job loss or other hardship, there may be a need for additional reserves for basic mental health! Mainly, how much extra cash brings you the most peace of mind? For many of us, Savings = Security = Peace. Lately, there is non-stop fearmongering in the news, constant talk of recession and war, and inflation that is highest that it has ever been in my adult life. I have found that beefing up my reserves has helped to somewhat offset the negativity that continues to be projected. When I must dip into my savings to cover an unexpected expense that I cannot cash flow in my budget, I have found that my stress level surrounding that movement of savings has increased significantly, further justifying my need to increase those savings levels.

While this is not meant to be individual advice, I would like for all of you to take some time and evaluate your cash reserve situation and apply these additional guidelines that I have used in my evaluations that I will share with you:

  • I have six months of INCOME, not expenses for our emergency fund. After 22 years of marriage and 21 years of parenting, I know that just covering the basics will not be enough. I need to ensure we have enough in the tank to operate at full capacity so that my kids can continue to do what they need to do in their own lives; we can continue to operate vehicles, have cellular phones, keep the air on, and feed everyone.

  • Another reason I have six months of income versus expenses in reserves is that I have additional money to allocate for property taxes that I must pay once a year. I can continue to add that amount monthly to my property tax savings line item.

  • I have our family health care deductible as a separate savings item because of my family’s medical needs. This is essential for my peace of mind.

  • I used to have a separate “sinking fund” for our house but have depleted that over the last year with costly repairs. I am working to build that back up, and the goal is 5% of my home’s value.

  • I am also building my homeowner’s insurance deductible as a separate line item in my savings account. After living through many hurricanes and the devastation they cause, I have now made this a priority.

There are other essential things that I have considered that you may want to consider in your own planning:

  • Do you have money to cover COBRA health insurance payments should you lose your job and not immediately find a job with benefits?

  • Do you have a company vehicle and car insurance covered by your current employer that you will have to cover the cost of a replacement should you lose your job?

  • Are there other benefits covered by your employer that you will have to pick up should you lose your job?

  • Are you close to retirement, and should you beef up your reserves even more?

  • Do you have multiple residences or land that will need upkeep?

  • Do you have children in college that depend heavily on you for support and payment for their education needs?

As many of you know, I tend to be overly cautious and pass that care and concern on to our clients. I do not believe in living like the sky is falling. I do, however, think it is vital to make sure we have considered all the expenses we could incur in an emergency, hardship, career change, or economic downturn, in hopes of increasing our security and mental well-being. Please contact me at if you want any help with these calculations.

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