Maintaining a Safety Net: Why I Always Keep 6 Months of Expenses in Savings

I consistently advise youngsters to handle their earnings through four distinct phases. Although I frequently emphasize the significance of managing money, numerous individuals either disregard this counsel or lack the perseverance to adhere to it.

The initial step involves establishing an emergency fund that encompasses a minimum of six months' worth of living costs. Should your monthly expenditure amount to VND10 million (approximately US$391), ensure you maintain savings totaling at least VND60 million. These funds ought to be readily accessible, either as physical currency or investments easily transformed into liquid assets.

Someone is depositing cash into a jar. Stock image courtesy of Pexels.

In case you are the primary breadwinner of your household, this fund ought to encompass all your family’s expenditures. For me personally, I maintain enough savings to cover one year’s worth of emergency funds.

After setting up your emergency fund, the subsequent focus should be on establishing a rainy day fund designated for anticipated expenses such as purchasing items like a television, refrigerator, washer, motorcycle, or vehicle. This savings pot can be segmented into various classifications based on your specific requirements.

Following this, concentrate on establishing a growth asset fund. This involves allocating resources into assets that appreciate gradually with time like property, gold, savings accounts, American currency, top-tier equities, treasury securities, or investment pools. Such financial instruments usually expand at an annual rate of around 8-15%.

Lastly, set aside approximately 5% of your total assets for high-risk investments. These funds should be considered expendable. Should you succeed, excellent; if not, you simply proceed without them.

I consistently recommend to youngsters that they should adopt this strategy; however, most disregard it. Instead, they opt for high-stakes ventures and appear unable to understand the importance of consistent, systematic accumulation of wealth.