So Why do You Need Savings?
What will you do if your car breaks down? What if you lose your job? Or are disabled and must wait a while before your insurance kicks in? We could list any number of scenarios, but the point is that you need cash when certain situations arrive in life. If you don’t have it, you either have to sell an asset (and it’s never a good time to sell an asset because you have to as doing so might cost you severely), or you have to go into debt – which is obviously the wrong direction. The other reason which may seem less intuitive, but which is even more important for you to understand if you are truly to build substantial wealth, is that you need to have cash available when opportunities arise.
So how much cash should you have?
This is actually a difficult question to answer. Most financial advisers will tell you that you need 3 – 6 months of living expenses as a Cash Reserve. Some will say 1 to 2 years worth. The best answer for you might be a little different than the best answer for your neighbor. For instance, if you’re focused on the Safety/Protection aspect of Cash Reserves (as opposed to the Opportunity) aspect, you might be safer if you’re a two income family than you would be as a one income family.
Generally, we like to see six months of reserves as a starting point. After the proper insurance is taken care of, this needs to be the focus of your planning. If you do not yet have the assets to be there, then your focus should be on building to this point. Depending upon what sorts of opportunities you have in the investing environment and how much wealth you are managing, you might decide to keep a much larger amount on hand.
You’ve heard the expression “Cash is King!” That is definitely overstating it a bit, but when times are turbulent and opportunities abound because most people are ducking and hiding, those left with cash are able to take advantage of it. So as you are building the wealth that you are stewarding, it is probably prudent to always build a larger and larger war chest of cash. Here we’ve been speaking primarily about the personal financial reasons for stewarding your wealth in this way.
We will also be talking more and more about designing your assets to produce cash flow for you so that you have a flow of money to put towards whatever God is leading you to do. This could be to reinvest so that you have more cash flow in the upcoming years. It could be to give this money to something/someone that the Lord has put on your heart, or it could be that He will have you store this money for a time here in your Wealth Coordination Account (which we’ll be talking more about soon) for some purpose that is going to be coming just around the corner.
You see, having cash could also be an excellent source of funds to do the will of the Lord in a moment’s notice.
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