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With the threat of a recession looming, more and more financial professionals Share how to prepare – including how much cash might be wise to set aside.
The end of June marks a tumultuous six months for S&P 500 Indexhas dropped more than 20% since January, limited worst six-month start to a year since 1970.
The future may not be clear, but stock market volatility, soaring inflation, geopolitical conflicts, and supply chain shortages have undermined Americans’ confidence in the economy.
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Indeed, more than half of Americans today worry about their emergency savingsup from 44% in 2020, according to a June survey from Bankrate.
Many are concerned about the shortfall: Nearly a third of Americans have less than three months of savings and nearly a quarter have no emergency funds, Bankrate found.
While bottoming out returns have made cash less attractive over the past few years, it may change when interest rates rise. And experts say there’s a value to the peace of mind that savings brings.
Here’s how much cash savings you’ll need at different times in your career, according to financial advisors.
Family with dual income: Save at least 3 months
Christopher Lyman, a certified financial planner with Allied Financial Advisors in Newtown, Pennsylvania, says the typical recommendation for dual-income families is to save three to six months’ worth of birth expenses. active. Why: Even if a person loses their job, there are other sources of income that help the family cover expenses.
Single earners: Set aside 6 months or more
However, single-income households could benefit from a savings boost to six to nine months of expenses, Lyman said.
For both single-income people and dual-income households, some advisors say it’s better to have higher cash reserves to provide “more options” and more flexibility in case of dismissal. Declarations are often associated with higher unemploymentand finding a new job may not be quick.
Catherine Valega, a financial advisor and CFP at Green Bee Advisory in Winchester, Massachusetts, recommends keeping expenses in cash for 12 to 24 months.
Personal finance expert and best-selling author Suze Orman also recommends extra savings and recently told CNBC that she ramps up spending between 8-12 months. “If you lose your job, if you want to leave your job, that gives you the freedom to keep paying your bills while you’re figuring out what you want to do with your life,” she said. speak.
Entrepreneur: Set aside 1 year of expenses
With the economic situation more uncertain, Lyman recommends entrepreneurs and small business owners try to set aside a year of business expenses.
“Implementing this advice has helped some of our business owners who have had to close due to the pandemic,” he said.
Some people feel uncomfortable having a lot of money ‘on the sidelines’ and earning nothing, especially right now when stocks are offering great buying opportunities.
Christopher Lyman
Certified financial planner with Allied Financial Advisors LLC
Retirees: Reserve 1-3 years of expenses in cash
With inflation soaring and interest rates relatively low on savings accounts, large amounts of cash can be a hard sell for some retirees. However, experts recommend keeping expenses up for one to three years.
“Having enough cash is the key to making money eventually in retirement,” says Brett Koeppel, a CFP and founder of Eudaimonia Wealth in Buffalo, New York.
Have enough cash possible Limit the need to sell assets When the market goes down, one mistake can drain your retirement balance faster.
Of course, the exact amount of cash to keep in retirement depends on monthly expenses and other sources of income.
For example, if your monthly expenses are $5,000 per month, you get $3,000 from your pension and $1,000 from Social Security, you may need less cash, about $12,000 to 36,000 dollars.
“This allows you to maintain longer-term investments without risk sell when the stock market goes down“, Koeppel said.
How much to save is a ‘very emotional subject’
There is some flexibility in the “right” amount. Lyman admits that money is a “very emotional subject,” noting that some clients have changed his savings suggestions.
“Some people feel uncomfortable having a lot of money ‘on the sidelines’ and earning nothing, especially right now when stocks are offering a great buying opportunity,” he said.
Others were previously “cautious” and now feel “absolutely nervous about the market,” which prompts them to save significantly more, Lyman said.
