How much cash do you need to deal with short-term emergencies, such as a temporary job loss, a major home repair, or a large medical bill? A common rule of thumb is that you need a cash reserve equal to at least three to six months of living expenses.
However, like most rules of thumb, this one does not take into account your individual situation. Your needs will depend on your age, health, job outlook, and ability to borrow quickly in an emergency. You will probably need a larger reserve if you work at a seasonal job, own your own company, or rely on commissions or bonuses; you expect to be laid off or lose your job; or you are the sole wage earner in the family. You may need a smaller reserve if you have more than one source of income or you have the ability to borrow significant sums quickly, such as through a home-equity line of credit.
You should check the adequacy of your cash reserve on an annual basis. Changes in your personal or financial situation, such as the birth of a child or the purchase of a new home, can mean you need more or less in your reserve. If you'd like assistance calculating how much you need for your emergency cash reserve, please call.