Cash is boring. Especially these days with ridiculously low interest rates. Still, cash is king because of the flexibility it provides.

Without cash, where do you go for unexpected emergencies or unexpected opportunities? Credit cards, Home Equity Loans, sell something on eBay?

Increasing or restarting your cash reserve is even more difficult after a prolonged period of living paycheck to paycheck.

There are some important things to keep in mind when preparing a new cash reserve,

How Much is Enough

Building up your cash endurance means having enough money to sustain your lifestyle if you lose your job or source of income. Some recommendations say you need six months worth of expenses in your cash reserves. Others say a year and some even say only three months should be enough. There is no right or wrong answer as long as you consider what is appropriate for your situation.

Consider your job security and short term goals. If you are in an unstable job or industry, saving closer to one year’s worth of expenses may make more sense. If you have short term goals (i.e. new car, down payment for a house) consider setting a higher goal amount.

Stay Strong Willed

Being strong-willed is important when building a cash reserve. If you are spending more than you are making then you HAVE to scale back. Be strong and fight the urge to buy the newest gadgets and toys. Practice what I call “cognizant spending” by making sure you are at least considering and thinking about each expense you make. Don’t make yourself feel guilty for spending money, but at least think about the action of buying.

Second Checking Account Strategy

Stretch out your paycheck over multiple accounts. Try setting up a second checking account or savings account that is not directly linked to your current one (often at another bank or credit union). Don’t spend too much time worrying about interest rates since right now most all accounts are low. Have a portion of your pay direct deposited to this separate account each time you are paid (ask your HR or payroll department what you need to do to add a second account).

Start small if you want to see how it feels at first. Try to stretch your limits a little and increase by $25-$50 every 3–6 months.

What are you doing to get your cash restarted?

Matt BrockMatthew B. Brock, CFP®

Senior Partner, Owner

Securities and Investment Advisory Services Offered through H. Beck, Inc., Member FINRA, SIPC. H. Beck Inc. and Divergent Planning are not affiliated.