To Your Health
August, 2008 (Vol. 02, Issue 08) |
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Saving for a Rainy Day
By Stanley Greenfield, RHU
Nowadays, most people aren't as familiar with the stuff you can carry in your wallet to pay for things. No, I'm not talking about credit cards; I'm referring to those pieces of paper with pictures of dead presidents on them.
Occasionally, you might see someone getting it out of a machine, but it is quickly spent for a specific item or items and then forgotten.
In many ways, we have become a cashless society. You can swipe your credit card at most stores and get an easy pass for your car so you can go through a toll booth and have it billed to your credit card. I can't wait until the referee flips a credit card before a football game to see who receives and who kicks off!
We all need cash. Cash is still king (I hope that doesn't offend any Elvis fans). I think everyone needs to have a cash fund, which I refer to as a cash/emergency/opportunity fund. There are times when, with a wad of cash in hand, you can pick up some great buys. There also are those times when "Murphy's Law" takes hold and you need some cash - and need it fast - to deal with an emergency situation.
How much should you have in a cash fund? I would start with a goal of at least $10,000. I suggest you work on establishing this first, before you start any investment plans. Once you get there, you need to set your sights higher and strive for an amount to cover at least two months of personal expenses. These cash accounts should not be kept in your checking account(s). Strangely enough, they have a way of disappearing when they are that accessible. They should be kept in a separate money market account so your money can earn a little interest and also be available when needed. It's a great feeling to know you can get your hands on that much cash without calling a bank or selling something.
Benjamin Franklin said, "In this world nothing is certain but death and taxes." You always need cash to pay taxes, so while you're setting up this cash account, you should consider establishing a tax account as well. This should be set up in a separate money market account to be used only for taxes. If you are self-employed, the next goal is to establish a cash fund for your office to cover the expenses of the office, minus your salary for one month.
How much do you need to put into this account? Again, if you own your own business and are not incorporated, every time you write yourself a check out of your business account, you need to write a check to be deposited in the tax account. For example, if you write yourself a check for $1,000, at the same time, write a check for 20 percent or $200 and deposit it in your tax money market account.
