These days many of us are living very close to the edge of our financial limits. There may be not much or nothing left over after we pay our bills. Your financial situation could change very quickly from adequate to critical, making this a dangerous situation if something were to go wrong. A cash reserve adds to your financial security. Without a cash reserve, you could quickly find yourself in serious trouble.
For instance, what if there was an accident or became seriously ill? Even if you have health insurance there are still deductibles and co-pays to meet. What if you run out of sick leave time and find yourself with no paycheck at all? Before you know it you may find yourself behind on the mortgage or credit card payments. Those interest rates will soon start to add up.
There could be similar results if your employer decides it’s time to downsize or if a natural disaster would occur. That's why it's a good idea to build a cash reserve of at least three months' living expenses.
It’s a good idea to invest your reserve in a safe, liquid account. Consider investments such as a bank CD, a money market fund, or a very short-term bond fund. Make sure you have easy access to the funds without losing too much interest. And once you've built your fund, avoid the temptations to raid it for nonessentials.
It may not be easy to build a reserve, especially if you're barely paying your bills now. But you'll never get there unless you try. Consider setting aside your tax refund or your next bonus, or set yourself a monthly saving goal. Perhaps you give up one espresso a day, eat at home instead of a restaurant one evening a week, or make your own lunch instead of eating out for a month. No matter how you do it or how long it takes, you may one day be very grateful that you made the effort.
For all of your financial needs contact our office at (260) 497-9761 to schedule an appointment with our Advisors.