Submitted by Pat Cote on February 17, 2019
Politics aside, it was tragic to hear that many government workers ran into trouble paying their bills when they did not have a paycheck for a month. Unfortunately, this cash shortfall is not unusual, as a Federal Reserve survey last year showed that 40% of American adults would not be able to cover a $400 emergency expense or would do so by borrowing or selling something.
Although many HENRYs (High Earners, Not Rich Yet) make more than the maximum government salary of $140K per year and may have substantial 401(k) balances, even HENRYs can sometimes run into trouble if they have not put enough emergency cash aside. In fact, one of the key pillars of a financial plan is to make sure that emergency cash is available if needed.
The rule of thumb for the right amount of emergency cash is anywhere from three to twelve months’ worth of expenses. The more risk in your personal situation, the higher the amount of emergency cash needed.