For many years, I did not attach any importance to my cash savings in general and was a big spender. I was betting on my future income to create my cash savings. Obviously, this all changed a year ago when my spouse and I decided to be active in how we manager our money. I want to emphasis on her and her will to have a substantial amount of cash. What a great idea she had, especially today during this crisis.
The golden rule: 6 months of expenses
The golden rule from all finance managers is to have 4 to 6 months of all expenses in cash. I understand this statement coming from the US where there is a low social security compared to Europe. Still, I agree with Ms TSF that 4 months would be a great goal as long as we are a family of 2 as a short term goal, and slowly increase this amount to 6 months over time.
Having cash is re-assuring us in this crisis
Once again, I can not thank my wife enough for being stubborn at the time. My employer recently decided to use the partial unemployment offered by the Swiss government. This decision does impact a bit my monthly payslip. However I am way more concerned for the future outlook considering the industry I work for: the air transport. Let’s just say our clients are facing an epic challenge.
Worst case scenario
As big spender, if one of us looses its job, we will still get 80% from the state. This however will impact our ability to save money greatly as we do have a few commitments and expensive leisures. Having this cash on hand gives me sleep security should we have big troubles and I am not worried on our ability to face our financial engagements
- If you are starting with money management, I strongly advise to save 4 months of expenses as soon as possible if you have social security should you be unemployed. Otherwise, go for 6 months at the bare minimum.
- After achieving your 4 month savings, I would suggest to aim to save up to 6 months spread on 24 to 36 months depending on your appetite. The rest of what you will save should be invested.
- Once you have 6 months of savings in cash, I would still keep 5% of what I can save monthly as cash increase. As time goes, so does your expenses. If you plan to have a big change in your life such as creating a family, your expenses will increase. Better prepared than sorry.
My next steps
It’s the first time I am being confronted to such a crisis, and seeing my job as unsafe. Even with some cash on the side and not doubting on my capabilities to find another job, I still had a few bad nights. As I am not convinced in the recent rally from the stock market and am still on the side, I will use the next 3 months to allocate all our savings to cash and aim for 6 months of saved expenses quickly.
Once arrived to these 6 months of saved expenses, my wife and I will be allocating our monthly saving to investing our money in the stock market.
What about you? How do you feel at the moment?