In tough economic times we often are faced with lot of pressure & mental stress – due to the fear of uncertainty.
It makes sense for people to build up ‘cash’ assets or cushion to reduce the psychological pressure for uncertainty. They way you can determine the cash cushion you needed is simply by asking the question “If I loose my income streams right now – what is the worst case time frame by which I can replace them with new & equivalent income streams?’… Is this 6 months, 1 year or may be even 2 years – you know best.
Make every effort to build up this cushion and NEVER touch this. Every year end, contribute about 3-4% (typical inflation) into that account and re-ask the above questions to see if the cushion is adequate. This money is best saved in a liquid account like Savings bank, money market, online savings – which you typically dont touch. Just ensure that it is a separate account that you dont operate from day to day.
There are other strategies that I will discuss later on that will help in a seperate post.
‘Cash is King’