cash reserves?

[camski]

I have finally reached a position where my personal finances are more than adequately being taken care of by my job income and I am working to funnel any and all extra into my business endeavors. What I am curious about now is how much/ or what method should I use to determine how much cash reserve I should keep. I would say I am not in the toddler stage of my business development rather than the infant stage, if that helps at all.

 

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[PEERless]

This is a highly personal choice, but many folks are choosing to skip the emergency fund and keep an emergency credit card instead. I'm not talking about people who can't/won't save, but folks who realize their money could be put to a better use than being kept as cash. Extrapolating this to a business strategy: availability of debt might be cheaper than keeping cash reserves.

Before I get flamed for not knowing what I'm talking about, let me just say that I learned (when studying international business) that 60-90 days of expenses is the traditionally expected cash reserve.

 

[randallg99]

I have finally reached a position where my personal finances are more than adequately being taken care of by my job income and I am working to funnel any and all extra into my business endeavors. What I am curious about now is how much/ or what method should I use to determine how much cash reserve I should keep. I would say I am not in the toddler stage of my business development rather than the infant stage, if that helps at all.

Congrats on this reaching milestone and two points I offer:

1. do not let this success get to your head... you have to continue to think rationally and be as diligent as ever to continue achieving goals... you got to this point without overspending, etc...

2. to directly answer your question as to how much/what method... AS MUCH AS POSSIBLE WITH NO EXPOSURE TO RISK!!!!! these words are crucial especially in the infancy stage of biz... now, you appear to be referring to excess cash flow that can be used to build the biz, am I right?

anyway I know of several people who would love to start over today had they taken these very words to heart, sad stories really that could have had much different outcomes just by being deliberately careful.

when the biz I opened 14 years ago stopped sucking all of my cash flow, I started to accumulate reserves (and fund a porsche among other perks) by opening CD accounts on a monthly basis and using a ladder system - rates were significantly higher then, and I started with a few grand a month and it grew from there.

because I wasn't sure if this money was going to be needed tomorrow or in 10 years, I thought keeping it liquid (never more than 120 day CDs) with the smallest risk was crucial to building the biz.

it's because of this strategy that I was able to open other businesses, remain debt free (for 7-8 years) , buy real estate and manage equities portfolio

good luck

 

[randallg99]

This is a highly personal choice, but many folks are choosing to skip the emergency fund and keep an emergency credit card instead. I'm not talking about people who can't/won't save, but folks who realize their money could be put to a better use than being kept as cash. Extrapolating this to a business strategy: availability of debt might be cheaper than keeping cash reserves.

a biz in its infancy stage probably already has debt that needs to be paid down almost immediately... each biz is different, but keeping an emergency fund is a very tried and true way of sustaining good and bad biz conditions in the long haul

take a look at a lot of biz on wall street today... the ones surviving and thriving are not leveraged and have significant cash/asset reserves

same thing with small biz

 

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[PEERless]

a biz in its infancy stage probably already has debt that needs to be paid down almost immediately..

I agree with this. PAY DOWN DEBT. But let's pretend the business has $0 debt and $0 reserve. When the next dollar comes in, I wonder (and Camski too?) where it should go.

I would say, invest in the business. A rainy day fund wouldn't be my first priority when I have access to credit.

 

[camski]

a biz in its infancy stage probably already has debt that needs to be paid down almost immediately... each biz is different, but keeping an emergency fund is a very tried and true way of sustaining good and bad biz conditions in the long haul

take a look at a lot of biz on wall street today... the ones surviving and thriving are not leveraged and have significant cash/asset reserves

same thing with small biz

I am referring to personal cash reserves not business cash. I guess I should have been more clear. I am coming from the perspective of keeping as much of my money (personal) invested and working for me as possible. What blend of personal money do most of you folks keep in savings/cash that is easily accessible (not asking for numbers here just reasoning). I realize that stocks are fairly liquid but I talking about money outside of investments strictly in cash.

 

[PEERless]

I think you'll find a lot of detailed and thoughtful responses in the Survive and Thrive thread.

I'm learning that fastlaners don't diversify much. They trust that they can do one thing and do it well.

 

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[SteveO]

Ask 10 people and you will probably get 10 different answers to this. I will defer to the game of cashflow. Are the people getting out of the rat race first the ones that are paying off their debt early in the game? Or are they the ones that aggressively invest in the good opportunities?

Since you are in the early stages, build the capital and access to capital (credit score and access to funds).

 

[GoldenEggs]

As for how much you need, what is the worst-case scenario you can imagine? Multiple the worst case scenario by .7 or .8, and that's the amount of reserves that seems reasonable to me.

ITA with that.... When my father-in-law fell and broke his ankle, we were very thankful that the insurance covered most of it. Unforunately, there was a 2 week period where we had to cover his stay at the convalescent home at $220/day. Then we had an unexpected business expense for our guitar parts where the supplier wanted to be paid in cash in one week. It wasn't a huge amount but it made an interesting time period! And right now, I may be needing fertility treatments, which was something that never crossed our minds. So definately multiply your worst case scenario by .7 or .8!!!

 

[hakrjak]

I'd say you should have 6 months of personal cash reserves if possible, but where some would say that you need to have this in CASH sitting in a money market or checking account -- I'll be much more lax and say that a 401k or other retirement fund that can be plundered in a hardship emergency would be sufficient to meet this criteria for me.

Money that is just sitting in an account doing nothing is like having an employee that you are having sit in the lunch room all day, when he could be working...

- Hakrjak

 

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