Financial Security Step 3 – Cash Reserve

The Foundation for Wealth

There is no exception to this rule: The very foundation of financial security lies in having an adequate cash reserve. The very foundation of financial security lies in having an adequate cash reserve. The very foundation of financial security lies in having an adequate cash reserve.

When your debt is paid off (Whether you pay it off first and then establish a cash reserve as Dave Ramsey recommends or establish your reserve first, is an issue to discuss with a financial planner – I took the establish reserve route first) you must set to establishing a cash reserve that will be with you for all time.

How much $$$ should I have in my cash reserve? This answer is very situation specific, but you won’t go too wrong if you always keep 6-12 months in your cash reserve. For example: I need $2500/month to pay all bills, and live a pretty nice lifestyle. The cash reserve that makes sense to my wife and I is $18,000, roughly 7 months.

Anywhere between 15k and 30k would be an acceptable range. Above 30k and you’re probably losing out on investment return – under 15k and things could get dicey if something bad happens.

That means that when you have your cash reserve, you keep it. You don’t spend it on cars or houses or vacations –you save for cars & houses & vacations above the cash reserve.

The old lady & I don’t spend money if we don’t have 18k in the bank – if an emergency happens – Oh crap I need surgery – we work to replenish that 18k.

 

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