In addition to staying on top of your monthly bills, paying off your student debt, and saving for retirement—you must set aside an emergency fund cash stash. But how much should this be?
Between 6 To 8 Months Is Ideal
The goal is to minimize the financial stress of unexpectedly losing your job, or for whatever reason, experiencing a drastic reduction in your income. Even if you receive unemployment, it is likely to be somewhere around half of your income—maybe less. For this reason, you should aim to have between 6 to 8 months of cash stashed in the bank.
Credit Cards Are Not Cash
It is never good to be put in a position that you have to live off of your credit cards, but this is actually a far better use of credit cards than how the average person uses them. While credit cards are not cash, they should be reserved for emergency funds—or strategic purchases, such as paying for your annual vacation without maxing out your cards. At the very least, set one card aside for emergency expenses.
The most important thing is that your emergency cash stash should not be spent on anything but emergency expenses—such as emergency house repairs, medical bills, or the cost of living while your income is decreased.