I hope this might be the prompt you need to get your house in order for the risks ahead. Remember: Proactive Communication, Getting Legal Documents/Insurance in order, and Having a Reserve Fund forms a solid foundation.
This is a great question. I see our core "reserve fund" as cash that is strictly earmarked as an emergency fund. We keep this at about 6 months. However, we have far more than that in liquid, non-tax advantaged investment accounts that would be another source of cash if the emergency fund wasn't enough.
Currently living this exact scenario as I unexpectedly lost my job a week and half ago. While the severance package was decent, the fact that I have about 6 months of financial runway saved up provides significant piece of mind. Now, I can take some time to figure out what I want to do next rather than take whatever comes out of desperation.
I’m an investment advisor to the UHNW crowd and endowments and foundations. I’ve found that private clients are most comfortable with about 12 months of spending in cash and short duration securities. This allows them to continue to live their life uninterrupted if there’s a sudden job loss, their invested portfolio drops, etc.
A reserve fund affords flexibility and comfort, even beyond just covering the unexpected. As a wealth advisor, I personally keep 12-18 months of expenses in liquid reserve funds to be financially unbreakable. The right amount is different for everyone depending on their circumstances. With higher yields than we've seen in recent history available on savings, I don't feel like I am missing out on some amount of return and I can keep my longer-term funds invested for growth.
To clarify, I have 6 months of liquid savings but I have 2 years+ of investments that I’m willing to sell if I ever need money beyond 6 months. I like to find the sweet spot of having enough liquid cash that I hopefully don’t have to touch the stocks, while not leaving too much money at rest so I can (hopefully) win big in the stock market.
In my country, if I lose my job, I receive 80% of my salary for 2 years while I search for a new position. However, I must adhere to a rigorous job search routine. Based on my qualifications, they even provide job recommendations for me to apply. Additionally, certain companies have an agreement with the job office to prioritize hiring me if I meet their requirements. Furthermore, it’s difficult to terminate employment here in my country.
I’ve never prioritized having a reserve fund. Majority of my savings (80%+) are used for investing (in common stocks) and I leave the remainder in a money market fund for other discretionary activities such as travel, gifts etc.
I read in one of Warren Buffet’s essays something called Pascal Wager and Noah’s Law. If there is one percent chance of disaster in the world and there is no going back it makes sense to have a Noah’s arch.
I relate that to having an emergency fund and saving while the sky is blue.
Also I love the “Wojak”animated sketch by “Low budget stories” on YouTube there is a character called Bogdanoff. Who dumps Wojak cryptocurrencies when he is doing well. Bogdanoff make it clear to be careful of the black swan. The black swan is the probability of the improbable. *_*
I would like to add the smoothing account a bit like a cashier float for big spends and emergency account sets my family up. For the smoothing account I like at the last two years big spends and plan the following year big spends. The smoothing account is float of money that goes up and down throughout the year and I make regular payment so the smoothing pot.
The reserve fund is CRUCIAL for me and my family. I ALWAYS want to have the ability to walk away and still be fine. A goal that my wife and I have is to have MULTIPLE years in a reserver (5Y+). As Dr Gurner says, having the ability to play from a place of strength is a very underrated thing IMO.
This is a great question. I see our core "reserve fund" as cash that is strictly earmarked as an emergency fund. We keep this at about 6 months. However, we have far more than that in liquid, non-tax advantaged investment accounts that would be another source of cash if the emergency fund wasn't enough.
Thank you for this!
Currently living this exact scenario as I unexpectedly lost my job a week and half ago. While the severance package was decent, the fact that I have about 6 months of financial runway saved up provides significant piece of mind. Now, I can take some time to figure out what I want to do next rather than take whatever comes out of desperation.
Glad you were ready when the impact hit. Wishing you well on whatever lies ahead, and glad you're able to make that call from a position of strength.
I’m an investment advisor to the UHNW crowd and endowments and foundations. I’ve found that private clients are most comfortable with about 12 months of spending in cash and short duration securities. This allows them to continue to live their life uninterrupted if there’s a sudden job loss, their invested portfolio drops, etc.
Appreciate that Garrett!
A reserve fund affords flexibility and comfort, even beyond just covering the unexpected. As a wealth advisor, I personally keep 12-18 months of expenses in liquid reserve funds to be financially unbreakable. The right amount is different for everyone depending on their circumstances. With higher yields than we've seen in recent history available on savings, I don't feel like I am missing out on some amount of return and I can keep my longer-term funds invested for growth.
Thanks Emily. Great thoughts. I'm trying not to bias what folks say, so I'll leave it there.
Making decisions from a place of scarcity is poison. Speaking from experience here.
Appreciate that.
To clarify, I have 6 months of liquid savings but I have 2 years+ of investments that I’m willing to sell if I ever need money beyond 6 months. I like to find the sweet spot of having enough liquid cash that I hopefully don’t have to touch the stocks, while not leaving too much money at rest so I can (hopefully) win big in the stock market.
Nice - thank you.
This is our approach as well!
Taylor! Loved your talk at StrangeLoop in STL :)
Haha thank you so much, Alex! Strangeloop will forever hold a special place in my heart.
In my country, if I lose my job, I receive 80% of my salary for 2 years while I search for a new position. However, I must adhere to a rigorous job search routine. Based on my qualifications, they even provide job recommendations for me to apply. Additionally, certain companies have an agreement with the job office to prioritize hiring me if I meet their requirements. Furthermore, it’s difficult to terminate employment here in my country.
Thank you for sharing this Kwaku - different country policies would certainly impact this! I appreciate you bringing that forward!
I’ve never prioritized having a reserve fund. Majority of my savings (80%+) are used for investing (in common stocks) and I leave the remainder in a money market fund for other discretionary activities such as travel, gifts etc.
I read in one of Warren Buffet’s essays something called Pascal Wager and Noah’s Law. If there is one percent chance of disaster in the world and there is no going back it makes sense to have a Noah’s arch.
I relate that to having an emergency fund and saving while the sky is blue.
Also I love the “Wojak”animated sketch by “Low budget stories” on YouTube there is a character called Bogdanoff. Who dumps Wojak cryptocurrencies when he is doing well. Bogdanoff make it clear to be careful of the black swan. The black swan is the probability of the improbable. *_*
I would like to add the smoothing account a bit like a cashier float for big spends and emergency account sets my family up. For the smoothing account I like at the last two years big spends and plan the following year big spends. The smoothing account is float of money that goes up and down throughout the year and I make regular payment so the smoothing pot.
The reserve fund is CRUCIAL for me and my family. I ALWAYS want to have the ability to walk away and still be fine. A goal that my wife and I have is to have MULTIPLE years in a reserver (5Y+). As Dr Gurner says, having the ability to play from a place of strength is a very underrated thing IMO.