Should A Company Use Cash Reserves To Advance Or Finance Planning For Emergency Financial Situations

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Planning For Emergency Financial Situations

Financial emergencies can happen to anyone and no financial management practice is appropriate without planning for such eventualities. The whole idea of ​​having an emergency fund is to offer a cushion against any unexpected expenses.

This will ensure that there is no negative impact on your financial status and that your entire financial security is not compromised.

There are many situations that can lead to a financial emergency such as sudden illness, accident, medical emergency, emergency home repair, job loss, emergency car repair and more.

The main reason for having an emergency fund is very obvious because when a person gets into an emergency financial situation, he has to break his savings or make compromises to get the money he needs.

It’s not rare to find people pulling out their credit cards and swiping them for hard cash. Contrary to popular opinion, credit cards are the worst way to fund any financial emergency. The fastest way to get thousands of dollars to get a car title loan is not a long-term solution but a short-term solution.

When you take out a cash advance to get the money you need from your credit card, the credit card company will charge you a cash advance fee along with the interest rate. It is a very expensive way to manage finances for borrowing and emergency situations.

So, what is the best amount to set aside as emergency money? There are different opinions on this. Some professional experts agree that at least 3-6 months of monthly income should be set aside for an emergency. This amount may vary according to marital status, family size and lifestyle.

Everyone should reserve some extra cash for emergencies. However, the amount to reserve depends on your income and monthly expenses. The amount needed for your emergency fund is open to debate, the minimum amount should be enough to cover your daily living expenses for at least 3 months. Although some financial advisors agree with a whole year of cash, it is also advisable to save for 6 months.

These funds should be kept separate in a device, which is readily available when needed. This can be money in a bank account, hard cash, liquid funds or fixed deposits. This will ensure that the fund is always accessible immediately or within a short period of time when it is needed.

Where to keep the cash

Your situation and what gives you peace of mind are factors that can help you determine how alert you want to be. Keep your emergency fund in a safe and accessible place because you may need to get cash in a hurry when an emergency arises. The best option you can do is to open a money market account or a savings account. But, always check their offer regarding interest rate, minimum balance, and other terms.

When you think you have saved enough, you can stop. You can now sleep easy and try to keep your extra savings in high interest and less accessible accounts or investments.

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