The Secrets of Your Savings Account
Do you tend use your savings account to hold onto cash when you are uncertain about what is going to happen?
Sometimes parents hold onto things from a first child because they don’t know if they’ll have a second child. After all, you don’t want to rebuy those same things. We also tend to hold onto cash when we aren’t quite sure what is going to happen ahead.
Have a Cash Flow System
Every dollar you have should have a job. If you aren’t giving a job to every dollar then your dollars are working against you.
Here’s What I Mean
We all know you ought to have an Emergency Fund. It should be a defined amount that you keep available. You should also have available any cash that will be going out the door in the next five years. This would be expenses that you have planned that extend beyond your income.
Flexibility Funds: Beyond Emergency Savings
Create a Savings Target
Your savings balances may fluctuate a lot during the year depending on stock vesting, property or income tax payments, and many other things. But your Savings Target should not fluctuate.
Your Savings Target is made up of two things:
- Your Emergency Savings
- Your Net Cash Needs over the next 5 years
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