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Why You Should Establish a Stash of Cash

Why You Should Establish a Stash of Cash

| March 01, 2019

In Proverbs 22:3, Solomon says, “The prudent see danger and take refuge, but the simple keep going and pay the penalty” (NIV).

In a nutshell, Solomon gave the financial principle behind maintaining a reserve, or an emergency savings account. We don’t know the timing of a possible layoff, roof repair, medical emergency, or transmission breakdown.

How much emergency savings should one keep on hand?

Three to six months of living expenses – not income, but expenses for basic needs. The range depends on the stability of your job, the steadiness of your income, your overall net worth, the number of dependents you have, and your personal comfort level.

In dollar terms, the three-to-six-month reserve is usually at least $2,000 and up to $10,000 or higher, depending on your personal factors.

Where should you keep your emergency savings?

You should keep your emergency savings in an account where you can access your money easily, without any penalties or surrender charges, such as a savings account, money market account, or checking account.

Your base emergency savings should not be kept in a stock market investment, an annuity, or even a CD. These examples may incur penalties or surrender charges, or it may be the wrong time to sell when funds are needed.

If and when you tap into your emergency savings, then you should immediately work on replenishing it back to the original level.

As aptly said in Proverbs 21:20, “The wise store up choice food and olive oil, but fools gulp theirs down” (NIV). Make it your priority to establish and maintain emergency savings.

Jeremy L. White