Cash Analysis – How Much Cash Do You Really Need?
In the current economy, many people are wondering just how much cash they will need to survive without any income. When doing a cash analysis, Americans are often told that they need three months worth of pay for emergency purposes. Well, in the current economy, I would argue that you need much more than that due to the extreme amount of layoffs.
I do not want to sound pessimistic, but it is better to be safe than sorry in this economic environment. If you only have three months worth of salary saved and are without a job for six months, you are going to go into debt; possibly deep in debt. If you managed your money wisely before the unfortunate events, you could be back in the workplace before you start digging yourself in debt.
The best way to do a cash analysis is to determine what it takes for you to live each month. You need to be completely honest with yourself when you come up with this number. If you fudge the numbers to be lower than reality, your cash analysis will not be correct. One of the easiest ways to do this is just to use the previous month. If there were no unusual expenses, it should be rather accurate to what you will need to live for a month. I would take that number and multiply it by six and write that number somewhere that you will see it every day.
Each day, your goal should be to get that amount of money at your cash disposal. When you have reached that amount, you will be financially stable enough to start investing money or putting it directly into your savings. If you can save six months worth of “survival” income you will be ahead of most of Americans today.