Making Finances Simple. Changing Lives.
There are many different aspects to your finances. All are important. Some are more important than others. So what should be your #1 priority when it comes to finances?
Should you keep a rigid budget?
Is it better to pay down your mortgage faster with extra payments, or invest that money?
How much should you invest?
Where should you invest surplus funds?
Should you buy or lease your car?
The questions are endless.
One critical financial discipline many people leave out is keeping a cushion in the form of reserves. There’s no doubt reserves may be the king financial priority.
What are reserves?
Reserves are funds you set aside to be readily available in case of emergency, or other short-term funding needs.
Since reserves may be needed at any time, these funds should be placed in highly liquid, low-risk locations. Online savings accounts or money markets are often good places since they earn some interest but have high safety and liquidity. Interest or investment earnings are not critical with reserves as the primary purpose is to help you quickly weather any life storms.
Reserves are your stress-free pillow. They’re what help you avoid credit card debt in the event of job loss or health issues. They’re what help folks avoid early retirement account withdrawals to help pay for a new air conditioning unit, or replacement roof. Put simply, reserves help you sleep better at night and avoid financial catastrophe.
For the above reasons, the importance of having reserves can’t be underestimated. After paying off all credit card debt, we suggest putting aside 3-6 months’ worth of expenses as your #1 financial priority.
What is your next money move? We’ve put together this handy guide to help you answer that question!