Generating a Liquid Capital Reserve

My advice to anyone is to never begin investing in risky assets before they have a minimum of between 9-12 months of capital in a highly liquid form such as a bank deposit account or Cash ISA. Yes, you won't be getting a good return (or even a positive one with inflation as it is currently), but you will have the security of knowing that if your primary (or only) income source disappears, you will have time to do something about it.

I've already shown you how to generate this capital reserve by budgeting and increasing your personal profit. The mechanics are straightforward. Determine how much you spend per month, multiply it by 1.5x and then save 9-12 months of that value before you even consider investing.

Example: Let's say that your monthly outgoings are £1,000. You want 10 months of savings in case you lose your job. Thus you need to save 1.5x1000 = £1,500 a month for a total of 10 months to get £15,000 in savings.

Put the first ~£5,500 in a tax-free wrapper such as a Cash ISA and then the rest should go into a bank savings account. Hunt around for online deals with easy access and good interest rates.

I actually carried this out prior to leaving a full-time role, so that I could pursue running a business. It gave me a good buffer as I had low monthly expenses at the time.