As a retiree, you may be misled by the slightly scurrilous suspicions the word “stash” may conjure up in your mind. But an emergency stash is very proper and even essential.
The term stash may be derived from criminals’ slang in the 18th century, but it has an up-to-date purpose in helping even retirees protect themselves from financial shocks.
An emergency is not always dramatic or extraordinary. Events happen every day that are unplanned and require cash. The engine in your car could fail and need an urgent and pricey repair. Out-of-pocket costs of hospital procedures are also often unexpectedly substantial.
You may have insurance for some of these, but sometimes you just need money now. A good retirement is not only about planning and preparing to meet your goals, but it also requires some protection of them, and that’s where the emergency stash steps up. An emergency stash gives you preparedness and peace of mind. See it as your number one financial goal, so you can access money fast.
Retired people do not always have access to new income streams, but they may have some savings tucked away, which could help seed a more substantial stash. Do your own internal audit. It doesn’t have to be much. As for how much, it’s suggested you should have at least three months’ worth of usual expenses saved in case of emergency. We have all seen the surveys which suggest how few families have adequate savings, let alone a friendly stash to get them through hard times. If you can help it, don’t be one of them. Three months’ expenses should be seen as a minimum, and you should consider more if you don’t have health insurance, and have an old car etc.
Be clear on what constitutes an emergency and what does not, so you avoid raiding the stash prematurely. Having nothing to wear, encountering a sale bargain or having larger than expected power bills are not good enough reasons for a raid. In contrast, fines or legal bills, a significant breakdown of the car or household services, a death in the family do fit the bill. Vet bills, even if you have pet insurance, can be very steep.
If you have to make a withdrawal from your stash, ensure you top it back up as soon as you can, even if it means deferring other goals. Make the set up like a monthly bill you have to pay. Arrange to have a set amount transferred from your day to day account to a special savings account weekly, monthly, or as suits, i.e. each pension day. If you get any sort of windfall, such as winning some money or getting a tax refund, transfer 90 per cent of it to your savings account – straight away. The remaining 10 per cent is your reward to spend how you like. You can save gold coins or notes when you sell used items, or attempt to cut down on household expenses. This can all help build the stash, so long as you don’t spend it first.
It makes sense to keep some of your stash in cash, as long as you have somewhere safe to keep it and will not be too tempted to raid it unnecessarily. The bulk of the money should be held in a savings account with the best interest rate you can get, and it shouldn’t be linked to your ATM or credit card.
Life changes, so you should review the amount in your stash annually. Does it still amount to at least three months of expenses? Has it survived and proved handy to cope with previous emergencies? You might even be able to liberate some funds if you’ve been lucky enough!
This article was originally published on November 28, 2021, information was updated on January 29, 2024.