I remember, many years ago, going through a retrenchment.
One of the biggest issues was: how much cash do I have available to support my household expenses?
Losing my position was frightening.
But more frightening was this: how was I going to pay for everything?
In the end, I managed. I got things working again. I found a new position.
Recently, I was speaking to someone who had just been retrenched.
I didn’t directly ask her how much cash reserve she had.
Was it one month?
Was it three?
What we find difficult — I think almost all of us — is to plan for the future.
We carry on with our jobs, knowing deep down that things might go wrong. But we don’t do much about it.
The problem is, we don’t have a proper cash kitty. We just have whatever’s available in our bank account.
And it’s amazing how often that’s the case. Most people I speak to have very little cash reserve.
I think it’s because of the economy.
Monthly expenses chew up so much of our income that there’s very little left to save.
I sympathise with everyone who doesn’t have cash reserves. It’s not easy.
You need enormous willpower to save for a rainy day.
You need a plan.
But most of us are optimistic.
We think things will carry on as they always have — so we don’t plan for the worst.
So how much should we have available?
Honestly, I don’t know. It depends on your circumstances. It also depends on your risk tolerance.
If you’re risk-averse, you might want to save six months’ worth of income.
That way, you could cover your expenses for half a year.
That’s a long time.
So what’s a more reasonable amount?
Probably anything between one and three months.
Three months is a good figure to aim for.
If you can do that, you’ll have a proper cash reserve.
In these times, it’s not a frivolous question.
It’s something to seriously consider.
