Build A Reserve Fund

This entry is part 5 of 8 in the series So You Want To Be A Millionaire

Build a reserve

Now that you are saving, you need to have some targets. Maybe you want to buy a car, and/or a house. You need to plan for these things. How much do you want to pay upfront, and how much are you willing to borrow? Once you know the answers to these questions, you’ll know how far away you are from your goals. You’ll also be able to determine how much you can save entirely toward your retirement fund (not including your pension plan). But one of your primary goals when just starting out is to establish a reserve fund.

The reserve fund will serve you in times of emergencies, or in situations such as becoming unemployed. If you lose your source of income, you will want to have something you can draw from until you are able to find a new income stream. Give yourself a buffer. It will reduce your anxiety, and give you time to find something else. It also gives you flexibility if you ever desire to leave your job.

So how much should you strive to have in reserves? You need to make an assessment relevant to you. Based on your profession, how easy is it to find something else in that field? Are you personally one of the more highly marketable ones in your industry? (You should be working to improve your skills and competency while you are employed. This will reduce the time needed to replace your job if it comes to that). Generally speaking, it is advised to have at least 3 months salary in reserves. But depending on your situation, you might need to have more.

Your reserve fund should be put away, and left untouched until it becomes necessary to use it. It is not for treating yourself to whatever luxury you fancy. Use it for what it is meant for. So hopefully you’ll never have to use it, and in that case, it will be a bonus to your retirement fund. Once you have this fund in place, you can comfortably plan for a car and a house. But don’t forget to factor in the additional expenses incurred from these purchases, into your reserve fund.

Action Plan

+ Determine the ideal target amount for your reserve fund
+ Create an account dedicated to this purpose
+ Automate your reserve fund payments to this account
+ Hone your skills to maintain your competitiveness in your profession


Related posts:

  1. Automate The Millionaire Plan
  2. So You Want To Be A Millionaire? – Introduction
  3. Multiple Income Streams
  4. Pay Yourself First!
  5. The Richest Man in Babylon

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