How to measure financial success
Everyone should have some cash stashed in CDs or a savings account that can be quickly and easily reached to:
- Pay routine bills if their income is disrupted by a layoff, illness or injury, or ...
- Cope with a big unusual expense – a wrecked car or storm-damaged house, for example – that your regular income can't possibly cover.
How much do you need?
David Walters, a financial planner at Palisades Hudson Financial Group in Portland, Oregon, suggests setting aside enough to cover at least six months' worth of expenses.
Let's say you need $2,500 per month to pay the mortgage and put food on the table. Then you need an emergency fund of $15,000.
Having such a fund means that you have a better fall-back plan than your credit cards. It shows that you're no longer living paycheck-to-paycheck and that you've taken the first step down the road to financial security.
"Emergencies, by their nature, are unexpected," Walters says, "so it provides a cushion to handle it."