Having a financial safety net in place can ensure that you're protected when a financial emergency arises. One way to accomplish this is by setting up a cash reserve, a pool of readily available funds that can help you meet emergency or highly urgent short-term needs.
How much is enough?
Most financial professionals suggest that you have three to six months' worth of living expenses in your cash reserve. Other factors you should consider include your job security, health, and income.
Building your cash reserve
If you haven't established a cash reserve, you can take several steps to build this new goal:
- Save aggressively: If available, use payroll deduction at work; budget your savings as part of regular household expenses
- Reduce your discretionary spending (e.g., eating out, movies, lottery tickets)
- Use current or liquid assets (those that are cash or are convertible to cash within a year, such as a short-term certificate of deposit)
- Use earnings from other investments (e.g.,stocks, bonds, or mutual funds)
- Check out other resources (e.g., do you have a cash value insurance policy that you can borrow from?)
Where to keep your cash reserve
You'll want to make sure that your cash reserve is readily available when you need it. There are several excellent alternatives, each with unique advantages. For more information about additional options, please contact our financial advisor, David Elster at 858-805-7949 or email@example.com.
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