Keeping a Cash Reserve

What is it and do you need one?

Today we’re talking about money! Because if the pandemic has taught us anything, it’s how scary life can be when your income suddenly comes to a standstill. Let’s delve a little bit deeper…

What is a Cash Reserve?

A cash reserve is a sum of money that a business owner has saved for emergencies, so they’re never caught off guard when things take a turn for the worst.

This could be a lack of orders, a late payment or just an extra demanding month.

Having a cash reserve provides a welcome alternative to getting in debt and creates some much-needed breathing space.

Keeping a Cash Reserve

How much do I need?

According to Starling Bank, it’s optimal to have at least three months’ wages (the total of how much is owed to you and how much you have to pay out on average) stashed in an accessible account.

So, if your income was to stop, you would be able to survive for three months on your cash reserve.

How do I build a cash reserve?

Chip a little bit off your income every month and put it into an account that is apart from any other savings you have so that it’s specifically dedicated to your cash reserve.

You can either do this at the start of every month when your earnings come in, at the end of every month with whatever you have left, set yourself a goal and add to it throughout the month, or even sign up to a bank account that rounds up your payments so it’s all done for you.

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