facebookAs a person investing many years before going to the workforce, should I follow the stipulated 6 months worth of salary(arbitrary sum) in reserve or just make do with just enough? - Seedly

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Anonymous

18 Apr 2019

General Investing

As a person investing many years before going to the workforce, should I follow the stipulated 6 months worth of salary(arbitrary sum) in reserve or just make do with just enough?

Discussion (4)

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I will disagree with most other people here, and say that "just enough" will be enough, because the money should be put to more productive uses and generate returns (particularly if you are putting this towards investment). From that perspective, the reserve fund is just to ensure that you are not forced to sell off your investments and/or make bad decisions just to keep yourself afloat.

However, what is "just enough" then depends on your personal circumstances. 3 to 6 month household expenses, and not salary, is a useful rule of thumb because it allows for you (and your family) to survive in the event you do not have salary come in as monthly cashflow. To be conservative (and in case you have an extremely low cost of living), this amount should also be able to cover any co-payment or excess requirements under your available insurance policies.

To further lower the "just enough" threshold, you can also consider including availability of outside sources of money you can rely on if required (e.g. parental help, although you really should try not to).

What happens if you are out of job for 6 months? will you have to sell your invesments?

For me it also depends on your personal obligations - for eg. A married individual with 2 or 3 kids ...

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