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It’s always a good idea to save some cash for a “rainy day.” An Edward Jones financial advisor can help make sure your savings support your overall financial strategy. After all, you’ve worked hard to keep your financial strategy on track, right? An unexpected expense could easily derail that strategy.
One way to prepare financially for things like these is by creating an emergency fund. We know that putting money away to prepare for the unexpected can be hard, especially if you don't know how much you'll need – after all, they call these unexpected expenses for a reason.
An emergency fund is a savings account used pay for large, unexpected expenses. Should an emergency happen, you’ll be able to use to money to cover your losses.
An emergency fund can help you save and prepare for:
As a starting point, consider putting at least three to six months' worth of expenses in your emergency fund. More specifically:
Why the ranges? If you're employed, these guidelines factor in the average length of unemployment – four months – as well as the potential for other needs. If you’re retired, you face many of the same potential emergencies (excluding a job loss) – except you are now also responsible for creating your own "paycheck" for your everyday expenses.
Regardless of whether you're working or not, you may also want to look into your access to a personal line of credit. It can help you supplement your emergency fund if the need arises.
While you might think “the more, the better,” that isn’t necessarily the case. Having too much of your savings sitting in cash can be an issue, especially when you’re investing for long-term goals such as retirement. Ultimately, your cash strategy can be a key factor in your long-term financial success.
To determine the role of cash in your financial life and how much you should have, look at your “USES”:
Use the chart below as a starting point to think about how much cash you may need for different USES:
As you can see, your cash need is as individual as you are. Your Edward Jones financial advisor can look at your entire financial picture and help you calculate how much cash you may need to fill your “rainy day” bucket and what should be invested to help you reach your goals.
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