Cash Flow Issues and Record-Keeping

Emergency Funds

We recommend that you have three to six months' worth of living expenses put aside for emergencies, for example, if business doesn't meet expectations. Ideally, the money you need should be in places that are easy to get to. Bank and credit union savings accounts, and bank, credit union, and mutual fund money market accounts. These are liquid, which means you can turn them into cash easily.

Mutual fund money market accounts usually pay a higher interest rate than those in banks and credit unions. Although they are generally regarded as safe, you should know that they are not federally insured the way most banks are for deposits of up to $250,000.

Here are some other sources you can look to if you have a financial emergency:

  • a home equity loan or line of credit (you should establish this now if you think you will need it in the future)
  • cashing in investments. (Although, you risk loss of principal)
  • a loan on a margin account (if you own securities)
  • a loan from a permanent insurance policy that builds cash value
  • a personal loan from your bank or credit union
  • a loan from your savings plan/401(k)
  • credit cards (look here last because of high interest rates)
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