Five Tips For Building A Healthy Cash Reserve
How To Build Cash Reserves To Safeguard Your Financial Stability
Acquiring and building cash reserves is a critical step that households and business owners can take to safeguard their financial stability. Setting aside an emergency fund can help pay for unexpected household expenses, sustain business operations during hard times, and even grant you the ability to pursue attractive investment opportunities during a down market. Households and companies with a cash cushion to fall back on are much more likely to survive downturns – a hard learned lesson during the pandemic.
It may seem difficult to figure out how to make building cash reserves an integral part of your financial plan. Consider partnering with a financial advisor and trusted banking partner who understands your unique goals and can provide a tailored financial plan and banking solutions. To get started, take a look at five quick tips that can help guide you in building a healthy cash reserve.
- Determine the correct size. Your cash reserve should be sufficient for you to feel comfortable running your business. A financial advisor or CPA can help determine the right size for your reserve.
- Maintain a separate account. Experts recommend keeping reserves in its own separate interest-bearing account, such as a bank savings account or money market account where funds are highly liquid and can be accessed to meet unexpected costs.
- Add to it consistently. Set a monthly target for how much to transfer to your cash reserves. To make things easy, consider setting up an automatic deposit of a fixed figure or percentage of revenue each month to a separate savings account.
- Consider alternatives such as a line of credit. A bank line of credit can function like a cash reserve. Drawing on a pre-arranged line of credit can act like a cash reserve for funding an opportunity or paying unexpected expenses.
- Replenish it if used. Cash reserves are meant to be used from time to time, but also meant to be replenished. If you dipped into your reserve during the pandemic or for an emergency, replace the funds as soon as possible to ensure your business or household is always covered.