The global financial market has always been a changing and unpredictable landscape. Today, as some experts waft a cautionary banner, the specter of global economic recession looms closer. This potential downturn should prompt everyone, whether an individual or a corporation, to pose a crucial question: How much should I have in emergency savings?
Save for a rainy day is not just a friendly admonition but an absolute necessity in times of economic turbulence. According to the reference provided by GodzillaNewz, most experts recommend an emergency savings pot equal to at least three to six months of living expenses. This could buffer against the aftermath of a job loss or sudden drastic income reduction, or cover unexpected crises such as healthcare emergencies or urgent home repairs.
The aim here, undoubtedly, is to ensure that your standard of living is not drastically affected during an unforeseen financial stress. However, the quantum of such savings could vary significantly between people. It could hinge upon factors such as the nature of their job, their place of residence, family size, income variability, and credit accessibility. Therefore, it is beneficial to undertake a personalized financial risk assessment to ascertain the level of emergency savings one should shore up against an impending recession.
If the advice is to set aside three to six months’ worth of living expenses, what does this mean in tangible terms? Let’s break this down into sample monthly expenses – rent or mortgage payments, utility bills, groceries, transportation, and healthcare costs. Now, consolidate these into a sum total and multiply by the recommended three, four, five or six according to your risk assessment. The result is the amount you should aim to have in your emergency fund.
Building an emergency savings fund could be onerous for those living paycheck to paycheck or those coping with debt. In such cases, a gradual approach could work best. Start by reducing non-essential expenses to divert funds into savings. You could also opt for automatic deposits into your savings account which creates a ‘set and forget’ cushion builder.
It cannot be stressed enough that emergency savings must be easily accessible. It’s a good idea to park these funds in an account that can be readily withdrawn from, preferably a high-yield savings account, rather than a retirement account or investment account that could incur penalties if accessed prematurely.
The specter of a recession signals the need for heightened awareness of personal or corporate financial health. It is more than prudent – it’s absolutely necessary – to fortify our finances and ensure a safety blanket against an unexpected economic downdraft. As we watch the state of the world’s economy with a vigilant eye, let’s also look within, taking the necessary measures to bulletproof our financial wellbeing against any potential storm.