How Much Emergency Fund Do High-Income Earners Need? | Student Loan Planner


How much do high income earners
need in an emergency fund? You know if you’re a high
income earner, your income is probably going to have a
little bit more variability than somebody that just
makes a steady you know government income. Now there are some exceptions
obviously physicians tend to have very stable incomes
no matter what the economic cycle is doing, but you know
if you’re not in medicine then you can certainly
have a lot of variability in your income. Even if you do have a stable
income you’re going to have more opportunities than other
people that make a lower income that you might want
to have higher liquidity for. One example would be buying a
home, you know you might not necessarily qualify for a
certain kind of programs that other people might
qualify for with lower mortgage levels because you have
a jump on mortgage. Now of course you might actually
qualify for more programs too, you might be able to put
down a lower down payment, but you might get better
interest terms if you have a higher liquidity and higher
income you’re going to be looking for a more expensive
house, so that’s something to consider. Another thing to think about
is if you are a dentist for example you need to have
liquidity to show a bank so that you can get
approved for a practice loan and make more money. So certainly that consideration. I tend to think that the
three months in the bank emergency fund is too low,
is too low for somebody that has a high income, so
I think that you need to aim for six months expenses in
the bank, which means you actually have to track your expenses. So I would login to
youneedabudget.com and find out exactly what you’re spending
per month so you know what to multiply by six to figure
out what your emergency fund needs to be. Now my consultant partner Rob
actually thinks that you need to have more like 12 months
expenses in the bank. I think that that’s great
more is obviously better, but I think that most people
can get by with six months. Now if you are going to open a
business or you’re interested in having something like that
happen for you then I would recommend having an
additional $30,000 that’s not kind of included in that six
months expenses, just have a little bit of extra
liquidity just in case you need to take out a loan from the bank. In terms of getting your emergency
fund and where to put it, I would recommend a place
like wealthfront.com which has a very high yielding savings
account that’s FDIC insured right now or a tax-free
municipal money market fund that you could use to get
tax-free income on your savings. So the most important thing
is to pay off all your credit card debt, get a really high
emergency fund so that you can start investing in things
like retirement accounts and brokerage accounts and then
also paying down your loans without having to stress. If you need help figuring out
how to get to an emergency fund and what amount you should
have in it, we do one-on-one consulting, check out
studentloanplanner.com/help and then just comment
below in the YouTube video what you think the right savings
you need for an emergency fund or what it should be
for high income earners.

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