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  • Writer's pictureReal Finance

Why you should have a war chest

Updated: May 27, 2022

If anything, the past year has proven to everyone that we need to be prepared for unprecedented and uncertain times. Especially when finances are at stake. A war chest is essentially a financial reserve that's put in place to ensure that you're able to cover unexpected costs when money is tight.

Businesses usually have a war chest to survive during difficult times. This buffer is typically stored in their company bank account. In businesses, cash reserves are generally established to cater for short term business needs. As a general rule of thumb, a war chest should ideally cover a company through six months of uncertainty.

While it's important to have a war chest from a business perspective, they can also be implemented for everyday personal finances. Just like businesses, it helps to at least have six months savings in a personal emergency fund.

If you don't have a finance reserve in place, you may benefit from putting aside a certain percentage of your income. It could be anywhere between 5% of your monthly income upwards. It's important to understand your monthly expenses, as they differ for everyone.

You can automate funds to be structured directly into a savings war chest. It's recommended that this fund is established in a separate savings account with high-interest. This'll help to reduce the temptation of dipping into it for your everyday expenses.

It's usually recommended that reserve funds are stored in an easily accessible account. Stocks are generally not a suggested place to store these funds as the last thing that you want in an uncertain time, is more uncertainty due to the everchanging stock market.

For more information on having a war chest in place, check out the video below:

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