Sunday, March 4, 2007

Cash Reserves - How Much is Enough?

I've been thinking about this a lot these days, especially since we're expecting another boy in a few months & I'm trying to decide how that will impact our budget.

How much cash do you need to weather a downturn?

More is better, natch. We'd all love to have 6 figures sitting there on top of a 7 (or 8) digit investment portfolio, but what truly is the right amount?

Currently, our monthly expenses run about $3,200 a month. This is particularly light because we paid off our mortgage a few months ago; without that, the amount would be more like $4,500 a month.

Given that I currently have $30,000 stashed away for rainy days of all sorts, I have $30,000 / $3,200 = about 9 months worth of cash.

Each person will have a different number due to different circumstances. I am married, the sole breadwinner, with 4 children, in an area where I do not have close family near by. I've lived independently since I was 18, and don't have any one else to fall back upon financially if things go South.

Given this, I wonder if I have too little saved up. There's a part of me that is seriously considering an 18 month target of savings, not the least of which due to the fact that I'm not considered an "executive" (low level, to be sure) and it's harder to switch jobs and/or find work if I were to be displaced.

This doesn't even consider the fact that the A/C or one of the cars might conk out, thereby cutting into the $30,000 kitty.

What do you have saved up? Do you feel like it's the right amount, too much or (probably) too little? How do you decide what the right amount is?

1 comment:

About cfs said...

Good question on the cash reserves and I do not have a cash reserve cubby hold per se - however, I do park whatever I can in one of my tax free BOND mutual funds.