How Much Should You Have In Your Emergency Cash Fund?
When economic and political times are uncertain, the role of a financial advisor is to assist clients in developing tools that will make them feel financially stable. The most popular tool to establish financial stability is an emergency cash fund. While advisors may believe these assets might be better off invested, most investors believe that having an emergency cash fund is critical. In fact, 82% of investors with $100,000 to $25 million of net worth currently have an emergency cash fund, according to research recently conducted by Spectrem Group.
How does one determine if the amount held in the emergency cash fund is adequate? Spectrem asked investors who currently have an emergency cash fund about the amount of assets held in the fund. Thirty-five percent of investors indicated that their emergency cash fund held six months or more of expenditures while almost a quarter indicated that their emergency fund held six months or more of income.
When asked if they felt comfortable with the amount held in their emergency cash fund, 91% of investors indicated that they did feel comfortable with the amount held in the fund. Almost half (47%) of investors without an emergency cash fund recognize the importance of this financial tool and are likely to establish an emergency reserve of assets.
Financial advisors should work with clients to ensure that the amount held in their own emergency fund is adequate. Remember, these assets don’t need to sit in a checking account. The emergency funds just need to be easily accessible in the event of a family crisis, job layoff or other similar event. Those financial advisors who take a holistic view of an investor’s needs are more likely to develop long-term trusting relationships.