15 August 2011

The Washing Machine Gives Up

Personally I am "reasonably adventurous" when it comes to investment risk. In other words I can still sleep at night if there is a reasonably large fall in investment value, largely because I know I will not be surrendering any investments any time soon.

 But I am NOT risking anything when it comes to having access to cash for miscellaneous purposes (like the washing machine which gave up yesterday). And I am certainly not going to put anything except short term expenditure on a credit card - that's a mug's game. That's where a "Piggy Bank fund" (or "emergency fund") comes in.

I often recommend to my financial planning clients that they should put such a thing in place. Even if it's not a separate account it's worth earmarking some cash somewhere which you can easily get to and which doesn't get spent from month to month. A quarter or a third of annual income is my usual first suggestion, although in view of low interest rates that may be a little high if income and expenditure are fairly stable.

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