One aspect that personal finance preachers always talk about is having emergency money on hand. The purpose of having accessible emergency cash is so that if you run on hard times (ie. if you lose your job, or your roof starts to leak), you'll have cash on hand to cover expenses. The key question is, how much is enough? How much should one hold in an emergency fund?
I've read around, and a lot of people say to have at least enough cash to cover 3 months to 1 year of expenses. So say that you have around $3k/mo in expenses, according to that rule of thumb, you should have anywhere from $9k -> $36k sitting in a bank account somewhere. In my opinion, the amount that you have in your emergency fund is purely a personal choice and should correspond to what you're comfortable with.
For me, since I'm pretty frugal (hence the name), I tend to have some cash on hand. However, I also have the tendency to spend the cash if a good investment opportunity comes up. The last time I spend a large portion of my savings was when I purchased a rental property, the deal was too good to pass up. So what if I needed cash during that period? I had a line of credit to fall back on, which would have been enough to cover the worst case scenario.
So maybe a better approach would be to ask yourself, if the worst case financial scenario happened right now, how much cash would I need to sustain me and my family?
How do you determine how much to keep in your emergency account?If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).