Dude, Where's My Cash Reserve?Submitted by Gary Alpert & Associates on March 14th, 2017
Dude, where’s my cash reserve is never a question you should be asking yourself. Having 6 months of expenses in an FDIC insured account is the only way to go. You shouldn’t have any less, but circumstances may cause you to need more.
Cherish that cash reserve. Be proud of it and bask in the glow of the fractional rate of interest you are getting. Be satisfied with the peace of mind that comes with knowing you have sufficient cash for a time of need. It is invaluable.
That stock account you have is certainly not your cash reserve. You’ll often need the reserve in a bad economy, the exact time the value of your stock account will not be looking healthy.
Let’s not even get started on lines of credit. Those are not cash reserves. Banks can pull a line of credit at any time and will do so if the economy turns south. Furthermore, anything borrowed must be paid back.
Let’s add tapping your credit cards to that as well. Credit cards are the absolute last vehicle you should think of as a cash reserve. Their ridiculously high rates of interest are the equivalent of financial quicksand that you may never be able to escape.
Your parents are not your cash reserve either. If you ask them for money, they may dish out their brand of “tough love” and refuse you (especially if you’ve asked them for money before). Also, why would you want to use them as a piggy bank and jeopardize their nest egg anyway?
Your boyfriend or girlfriend will be the last folks you’d want to go to for cash, unless you believe in a very swift end to your relationship and some uncomfortable trips to the breakfast table if you live together.
If you’re paying off that credit card debt, way to go. However, you better be building up that cash reserve at the same time.
Paying down the mortgage is music to my ears, but I will wince if I find that you are bringing your reserve to zero in order to do so.
Interested in rental properties? Look somewhere else unless you have oodles of cash. Rental properties demand their own cash reserve in addition to your own.
401K loans? Ugh! You take market risk and may run into all sorts of tax issues if these monies aren’t paid back.
Got kids? Take that 6 months of expenses and double it. The parents who are reading this know what I’m talking about.
A cash reserve is just that; cash! Don’t mess around with it and don’t lose any of it. Keep it where you can get to it right away and never get caught saying “Dude, where’s my cash reserve?”
* The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.