Before you go about making any long-term investments, your family needs emergency cash cushion to pay the bills in case the primary bread winner in the family loses his job or if there is some other major expense. You don’t want to be touching your long-term investments to pay for short-term needs.
How much does your family need? About 6 months worth of living expenses, not net income or gross income but expense. Estimate your family’s monthly outgo and multiply that number by 6.
And that is it. Any more cash than that belongs in long-term investments. Why? Attached link makes it absolutely clear.
Some excerpts from this article.
“Faced with a stubbornly slow and uneven global economic recovery, more countries are likely to resort to cutting the value of their currencies in order to gain a competitive edge.”
“The massive Fed balance sheet expansion has resulted in the U.S. dollar declining about 11 percent against a basket of world currencies since QE began in 2009. In the meantime, stock prices have doubled since their March 2009 lows and the Morgan Stanley Commodity Related Index has gained about 80 percent.”
Savers get their wealth totally obliterated but investors do just fine. And this globally coordinated attack on all ‘safe’ or fixed-income investments means that there is nowhere to hide in the apparent safety of bank CDs or savings accounts or even bonds.
So when it comes to your family finances, save a little and then invest the rest.
Happy Saving and then Investing.
Image credit – Bill Sutton, Flickr