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

I frequently advise youngsters to handle their earnings through four distinct phases. Despite emphasizing the significance of financial management all the time, numerous individuals either do not pay attention or lack the perseverance needed to heed my guidance.

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 kept in liquid form such as cash or investments readily convertible into cash.

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

If you are the main income earner in your household, this fund should cover your entire family's expenses. Personally, I keep a year's worth of money for emergencies.

After establishing your emergency fund, the subsequent step should be setting up 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 sections based on your specific requirements.

Following that, concentrate on establishing a growth asset portfolio. This involves allocating resources into assets that appreciate gradually with time like property, precious metals, deposit accounts, American currency, high-quality equities, state securities, or investment funds. Such assets usually increase in worth by approximately 8-15% each year.

Lastly, set aside approximately 5% of your total assets for high-risk investments. These funds should be ones you won’t mind losing. Should you succeed, excellent; if not, you’ll continue unaffected.

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