Building the Nest....with Cash

Welcome back! I'm going to round back on our first email about the $1000 Emergency Fund and help us build a nest of cash. 

We all agree baby emergency fund is helpful...but hardly enough to really save us from disaster long term. Most financial "gurus" will tell you to save 3 to 6 months of income and to that I say...YUP, can’t disagree. But are there intermediary ways to achieve it?? Sure... 

Get ready, we are going to Math…

Let's say Anne and Bill have stable employment with a combined income of $8500/mo [Anne= $2200 Bill=$3750] and their monthly expenses are $5950/mo.  

Using the 70/30 Budget: 

• $8500 X 70% = $5950 EXPENSES

• $8500 X 20%= $1700 RETIREMENT/ KIDS EDUCATION

• $8500 X 10%= $850 EMERGENCY FUND

To save a traditional 3 months of household income would take $25,500 ($8500 X 3).

So, that would probably never happen…..Why you ask? Because it would take between 9- 12 months of diverting every single penny that would have gone into their retirement accounts, the kid’s RESP, Christmas presents, annual vacation and home repair to achieve that. Life is messy and it is hard to imagine being able to say “No” to everything that makes life enjoyable just to complete the emergency fund. 

What if they could have the same sense of security but save only half the money? Using a similar timeline BUT still having money available for retirement planning, vacations and Christmas. Sign me up!

Consider this:

• Focus on saving the 3 month equivalent of Bill’s income ($3750 X 3 = $11,250) using 10% of the household income ($850).

•  $11,250 Emergency Fund would replace Bill’s salary for 3 months or Anne’s for 5 months.  

•  Remember it’s unlikely both be laid off at the same time. 

If you want to know more about how to build your 3 month emergency fund or other levels of financial security like life insurance let me know- I'm just an email away.

SandyMac