Here's Exactly How Much You Need in the Bank To Sleep Well at Night, According to Experts
Your friends and neighbors may not feel as financially fulfilled as you expect. In fact, according to an analysis of a study from Edward Jones and Gallup, only 16% of American adults think their personal finances support the life they want to have.
Perhaps you fit in with the 32% of adults who noted they experience consistent financial stress. Or maybe you land somewhere in between.
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No matter how you’re feeling about your money situation, read on to see what some finance experts said is the amount of money you need in the bank to sleep well when your head hits the pillow.
Find Your Number
One money pro had a quick answer to the question of how much you need in the bank to sleep well at night.
“You need $10,000 in the bank to sleep well at night,” said Melanie Musson, finance expert with Quote.com. “There aren’t many emergencies that you face that will cost more than $10,000. Most emergencies that cost more than $10,000 are covered by insurance."
Further, Musson noted, with $10,000 in the bank, you have possibilities. You have a cushion. You give yourself time to figure things out if you face a job loss.
Not all experts agree that there’s a simple answer to how much you need in the bank to sleep well.
“The real answer is somewhere between three and six months of essential expenses, this isn't including all your other costs but only necessities, which would include your mortgage or rent, utility payments, food, car payments, insurance and minimal debt payments,” said Cody Schuiteboer, president and CEO of Best Interest Financial.
Schuiteboer added that a household consisting of two income earners with regular paychecks can go for three to six months. For a single earner, commission income or self-employed individuals, however, he always recommends six months to a year.
“The reason is not necessarily losing one paycheck or experiencing a rough few weeks; it's more often losing one income stream during a period when the mortgage has to be paid regardless,” he explained. “‘Sleeping at night’ isn't an arbitrary nationwide average; rather, it's the figure that will cover both the mortgage payments and essential expenses until the household finds another source of income without dipping into its retirement savings.”
Where To Keep the Money
Schuiteboer said cash reserves that enable you to pay for essentials should be kept in a high-interest savings account or money market fund.
“The returns might be lower than on some of your investments but they're much higher than a traditional savings account and it stays accessible, meaning you'll be able to withdraw those funds easily within days and use them without any penalties,” he added.
Reaching the Maximum
Per Schuiteboer, there’s a ceiling on savings, too.
“Once you've saved nine months to a year's worth of living expenses in cash, they lose value due to inflation and could probably earn even more if you chose to invest that money instead,” he said. “While we talk about a number being in a specific range, the upper bound isn't infinite.”
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This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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