There are plenty of “rules” out there about how much money you need to save up for a rainy day or an emergency, but how do you know what you need to save? This week on Worth It, Dustin and Danielle are digging into a simple formula that can help you answer that question, both for personal savings goals and for your business.
When it comes to calculating what you need to save for an emergency — or to keep the lights on should your business hit some bumps — it helps to have a clear formula. That’s exactly what Dustin and Danielle provide this week on Worth It.
In the episode, they talk about different elements of your “short-term savings bucket”:
To make this a little clearer, Dustin and Danielle share an example in the podcast to demonstrate exactly how you should save. Let’s say you make $1 million revenue from your business, and you spend $10,000 a month to keep your household running
In this case, for a 3-month personal emergency fund, you’d need $30,000. For 3 months of business operating cash, you’d need about $250,000
How did Dustin and Danielle come up with those numbers? This simple formula:
Total monthly expenses x 3 = your bare minimum emergency fund
For larger funds or more volatile income, Dustin and Danielle recommend that you up the monthly multiplier to 6.
The Cash on Hand Calculator inside of the Toujours Planning Resource Vault makes it even easier for you to find this magic number.
This is a hypothetical example and is not representative of any specific situation.
So what do you do with your money once you’ve got these short-term “savings buckets” filled up? You start with your intermediate and long-term savings goals. This is where you can start investing in less liquid assets that offer compound interest, but it’s best to do that with the help of a CERTIFIED FINANCIAL PLANNER™.
If this is all overwhelming, seek help from a CERTIFIED FINANCIAL PLANNER™. And if you want help figuring out how much cash you need on hand and how much to invest, Toujours Planning may be able to help. Take our quiz to see if we’re a good fit.
This material is for general information only and is not intended to provide specific advice or recommendations for any individual.
What if you had a clear formula to help you figure out how much to save… while paying down debt and enjoying life? It is possible… when you know your numbers.
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