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Investors with less than $10,000 in cash savings

Ben Blake, CFP | Portfolio Manager at Parsec Financial

Keep saving. Previously in the “cash” asset class discussion, we went through the importance of having a “buffer” of about 3 months of living expenses or more on hand at all times. This is important since we will almost certainly face unexpected expenses that our regular paychecks can’t absorb, so do not put all of your savings into investments that have volatile prices since you will likely need to use this money at an undetermined point.

But, it is critical that you do not delay contributions to your 401(k), especially if you are eligible for matching contributions. It is also beneficial for you to learn to live with what is left in your paycheck after 5% or more of it gets pushed to your 401(k). This gives you time to adjust your living expenses so you know what you can spend after saving approximately 5% for your 401(k) as well as saving an additional 5% in order to begin funding your personal emergency reserve.

This $10,000 number should be flexible based on where you live and what your monthly expenses are. If you live in NYC, then $10,000 will likely only give you 6-8 weeks to live off of if you lose your job. If you are recently out of college and are still near campus in a house with utilities split six ways, then you can probably start funding your investment accounts a bit earlier.

Whatever you decide your “buffer” to be, keep it steady as you begin to invest. Whether it is cash in your checking/savings account or a cash allocation in your brokerage account – be sure that the total cash amount across all of these areas at least meets your “buffer.” As time goes on, it is wise to gradually increase this level as your expenses will rise.