Life has a funny way of throwing curveballs. One minute, everything’s ticking along nicely, and the next, your car breaks down, the dog needs surgery, or an unexpected medical bill lands in your lap. When these moments happen, having a cash reserve can make all the difference.
What is a cash reserve?
A cash reserve is a stash of money set aside specifically to cover urgent, unexpected costs. Think of it as a financial safety net — it catches you when life takes an unexpected tumble, so you don’t have to rely on credit cards, loans, or dipping into long-term savings.
How much should I have in my cash reserve?
The right amount varies for everyone, but a good rule of thumb is to aim for three to six months’ worth of living expenses. The question is: where do you land on that spectrum? It depends on your personal situation.
You might aim for three months if:
- Your job is stable and in high demand.
- You’re relatively healthy.
- You rent and don’t have dependants.
- You have a strong support network.
You might aim for six months (or more) if:
- Your job is less secure or would take time to replace.
- You own a home (especially if it’s older and may need repairs).
- You have children, pets, or other dependents.
- You have ongoing medical expenses.
- You’re self-employed or work in a fluctuating industry.
For those with very specialised jobs, multiple dependants, or nearing retirement, aiming for up to a year might offer extra peace of mind.
Where do I start?
If saving three to six months of expenses feels overwhelming, that’s completely normal. Start small. Even having one month’s worth of expenses tucked away can make a huge difference. From there, you can build gradually.
Tips to grow your cash reserve
- Set a realistic goal: Work out your monthly “must-have” expenses — things like rent or mortgage, utilities, groceries, and insurance — and use that number to guide your target.
- Automate your savings: Set up a regular transfer into a dedicated cash reserve. Treat it like any other bill to ensure consistency.
- Boost your reserve when you can: Got a tax refund or birthday money? Consider popping a bit of it into your cash reserve.
When should I use my cash reserve?
The key is defining what counts as a true emergency. Car repairs that get you back on the road? Yes. Last-minute tickets to a concert? Probably not. Think of your cash reserve as the money that steps in when life throws a genuine curveball, not just a minor inconvenience.
Keep it topped up
If you do need to dip into your cash reserve, aim to replenish it as soon as you can. Remember, the goal is to ensure you’ve always got that financial safety net in place.
Something is better than nothing
Even if you can only set aside a small amount right now, that’s okay. The most important thing is starting. Over time, those small contributions will grow — and so will your peace of mind.