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The threat of recession is imminent and more financial professionals are Share how to prepare — Includes the amount of cash that may be wise to save.
At the end of June S & P500 IndexDecreased by more than 20% from January, One year from the start of the worst six months since 1970..
The future may be uncertain, but stock market volatility, rising inflation, geopolitical conflicts, and supply chain shortages have weakened American confidence in the economy.
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Indeed, more than half of Americans are now Worried about the level of emergency savingsAccording to a June survey by Bankrate, it increased from 44% in 2020.
Many are concerned about the shortage. Almost one-third of Americans spend less than three months saving, and almost one-quarter do not have emergency funds.
Over the past few years, solid earnings have made cash less attractive, but that’s Changes as interest rates rise.. And experts say the peace of mind that savings bring is worth it.
According to financial advisors, the cash savings required at different times in your career are:
Christopher Lyman, Certified Financial Planner for Allied Financial Advisors in New Town, Pennsylvania, said a general recommendation for double-income families is to save three to six months’ worth of living expenses. Reason: Even if one earner loses his job, there are other sources of income that can help families keep up with their expenses.
However, households with a single earner could benefit from raising their savings to the cost of six to nine months, Lyman said.
For both single-income and double-income households, some advisors suggest that they should have higher cash reserves to offer “more options” and greater flexibility in the event of dismissal. say.Recession is usually closely related Higher unemployment rateAnd finding a new job may not happen immediately.
Catherine Valega, CFP and Wealth Consultant at GreenBee Advisory in Winchester, Massachusetts, proposes to keep 12 to 24 months of expenses in cash.
Personal finance expert and best-selling author Suze Orman has also recommended additional savings, and recently said he would require CNBC to spend eight to twelve months. “If you lose your job, if you want to quit, it gives you the freedom to keep paying your bills while you understand what you want to do in your life,” she said.
As economic uncertainty grows, Lyman encourages entrepreneurs and small business owners to strive to secure a year’s operating costs.
“This advice prevented a significant number of business owners’ clients from shutting down due to a pandemic,” he said.
With rising inflation and relatively low interest in savings accounts, it may be difficult for some retirees to sell large amounts of cash. However, experts suggest that the cost of 1-3 years be readily available.
Brett Koeppel, CFP and Founder of Eudaimonia Wealth in Buffalo, NY, said:
If you have enough cash at hand Limit the need to sell assets Failures that may quickly exhaust your retirement balance when the market is down.
Of course, the exact amount of cash you have when you retire depends on your monthly expenses and other sources of income.
For example, if your monthly expenses are $ 5,000, you will receive $ 3,000 from your pension and $ 1,000 from social security. You need less cash, about $ 12,000 to $ 36,000.
“This allows us to maintain long-term investments without taking risks. Sell when the stock market is depressed“Keppel said.
There is some flexibility in the “appropriate” amount. Lyman admits that money is a “very emotional topic” and states that some customers deviate from his savings recommendations.
“Some people are offended by having so much money on the’bystander’and not making anything, especially when stocks seem to offer great buying opportunities.” He said.
Some were “cautious” in the past, while others now feel “thoroughly worried about the market,” Lyman said.