Planning for your financial future can be complicated, but financial planners agree that having a solid emergency fund is essential for your future. A common rule of thumb is to have three to six months’ worth of living expenses in an emergency fund that is separate from your retirement fund. But how much cash is too much? Let’s take a look at how you can determine how much cash you should keep in your emergency fund to ensure you have the financial security you need without overfunding your emergency savings.
Retirement Emergency Funds
Although there is no penalty for pulling money out for an emergency during retirement, having a designated emergency fund helps prepare you for the unexpected. As noted, three to six months of living expenses is a good amount of money to have aside, but many experts suggest keeping more cash on hand depending on your individual situation. Your emergency fund should be easily accessible and stable, meaning it is not in a stock account for example.
The Importance of Keeping Cash
Your emergency fund should always be easily accessible at any time. The assumption is that most of your retirement savings are invested in different assets and funds, but if you pull the money from those accounts during difficult market environments may lead to selling investments at a loss. The amount of cash you have does not change unless you spend it, meaning you know exactly how much cash you have to support yourself. As an extra precaution, placing your money in an FDIC-insured bank account ensures you don’t lose money if your bank goes under, and your funds are insured for up to $250,000. A financial advisor should be able to help you find the right account for your savings.
What to Do with Funds Over $250,000?
If you have more than $250,000 on hand, you can put the rest of it into another savings account at a different FDIC-insured bank. The FDIC’s insurance limit is per bank member, per FDIC bank, per ownership category. There are also additional savings options that could provide higher returns and protect you from inflation. Money market accounts are one option, but they can charge high fees that could lower the value of your savings. A certificate of deposit is also an alternative, but it can be tricky to get your money out of one in the event of an emergency. You should never have your entire emergency fund at home in a safe; only keep enough cash to get a few tanks of gas and a few days of food and supplies. Either way, there are options available to you to ensure you yield the highest savings from your emergency fund.
Consult a Professional
Whether you have $100 or $100,000,000, it’s always a good idea to ensure your emergency fund is kept safe. If you are unsure how much money you should have set aside, find a financial advisor who can help guide you through the process. At Davis Wealth Management, we specialize in working with individuals who want to secure their assets and build a stable future. Our financial planners can partner with you to establish emergency funds that are tailored to your needs and situation.
About Davis Wealth Management
Davis Wealth Management is a pre-retirement and retirement planning and education organization that has grown to be a multi-fiduciary advisory company that provides an array of financial services. Our team is committed to empowering you with the tools to identify and achieve your financial goals and provide you with a more confident retirement. To get started on a more secure financial future, visit daviswealthmgmt.com or call (603) 715-2335.