As the economy continues to be uncertain, it’s more important than ever to have a good amount of cash on hand. Many experts are now recommending that individuals and businesses should aim for 6-12 months of expenses in liquid assets in a savings account or money market account in order to protect themselves from economic downturns or financial shocks.
Having this kind of liquidity is not only comforting but can also help you take advantage of opportunities as they arise. So if you’re looking for ways to make sure your finances remain secure during these turbulent times.
In this guide, we’ll discuss how to manage your cash flow to grow your cash on hand.
Stop Reading – Set Aside Cash Now
With the global pandemic, stock market fluctuations, and other economic conditions leading to recessionary fears, having a healthy amount of emergency cash on hand is becoming more important now than ever.
Keeping cash available in a high-yield savings account or emergency fund at a financial institution helps you remain financially secure in uncertain times and can also open up opportunities for you during periods of growth.
For example, as a business owner, having a larger pool of emergency cash on hand could enable you to take advantage of great deals or opportunities that come up. They can also navigate high-risk situations with a well-established emergency fund. Or as an individual, it gives you more financial security and flexibility if you run into unexpected expenses.
How Much Cash Should I Have On Hand?
A general rule of thumb is to aim for 6-12 months of living expenses in liquid assets. This means keeping physical cash available in order to cover the costs of your rent, bills, food, transportation, and any other necessary living expenses.
For instance, you can add these funds to a savings account or an emergency fund. This will ensure that you carry cash when needed and can also help you earn some interest in the long run.
However, it’s important to make sure that you’re not going overboard when setting aside these funds in your savings accounts or money market accounts.
It might be tempting to save more than what you need, but it’s important to remember that cash on hand should not be used as an investment in the stock market. A savings account or money market issued by banks or credit unions is less risky than the stock market or just having physical cash at home.
If you’re a business owner, it’s always important to keep enough cash on hand to cover payroll expenses and other costs associated with running your company. Having this kind of liquidity will help ensure that your operations don’t grind to a halt in times of financial hardship and meet your financial goals.
Knowing how much cash you have and setting aside a regular amount will help you stay on top of your finances and guarantee that you have enough money to cover any unexpected expenses.
How To Manage My Cash Flow To Grow My Cash On Hand
Knowing how to manage your cash flow can be the difference between having enough liquid assets to cover your living expenses and running into a financial crunch. Here are some tips to help you get started on meeting your savings goals:
1. Keep Your Books Up to Date
The first step to managing your cash flow is making sure that your books are up to date. This means keeping track of all your income and expenses so you know exactly how much money you have coming in and going out each month.
To start, you should create an Excel spreadsheet or use bookkeeping software to track your finances. This will help you stay organized and make it easier to spot any potential cash flow problems before they become an issue.
Working with a registered bookkeeper or accountant can also help you with financial planning and make sure that everything is in order. They can also provide valuable advice and insight on how to best manage your cash flow.
Businesses can take advantage of CFO services to help them maximize their cash flow and make sure that their finances are in order.
You can also set up automatic reminders to help you stay on top of your bookkeeping. This could include setting reminders to pay bills on time or tracking incoming payments so you know how much cash you have available.
2. Keep Your Accounting Simple
Having a simple accounting system can go a long way in helping you manage your cash flow. Make sure that your system is easy to understand, and don’t try to over-complicate it with too many details.
You should also make sure that all of your accounting entries are accurate, so you have a clear understanding of exactly where your money is going each month.
Partnering with a registered accountant or financial planner can also help you create a sound accounting system and make sure that your finances are in order. By working with a professional, you can ensure that your financials and emergency fund are managed properly and give yourself peace of mind.
Plus, you can also get advice on how to best manage your cash flow and create a budget that will help you maximize how much cash you have on hand.
3. Separate Business and Personal Finances
Having a separate bank account for business and personal expenses will help you keep track of your finances and make sure that everything is accounted for. This includes setting up separate credit cards and bank accounts, as well as tracking all income and expenses.
Keeping your finances organized in a different bank account such as a savings account will help you make sure that you’re not overspending or taking on too much debt. It will also help you spot potential problems before they become an issue.
If you’re a business owner, it’s also important to make sure that your finances are organized and up to date. This could include setting up separate accounts for each of your projects, tracking income and expenses, and keeping track of business taxes.
You should also make sure that you’re filing your taxes correctly and on time. This is especially important if you’re a sole proprietor or LLC, as you may be liable for any taxes that are due.
4. Leverage Other Resources
There are many other resources available to help you manage your cash flow. For example, you can take advantage of online invoicing services to get paid faster and more securely, or you can use financial tracking software to keep an eye on your expenses.
You can also speak to a financial advisor about setting up an emergency fund, which can help you cover unexpected expenses and protect your business in times of financial hardship.
Also, consider setting up an automatic savings account to help you set aside money for future expenses or as an emergency fund. This will allow you to save more quickly and easily, and ensure that you always have enough cash on hand.
5. Know The Various Accounts You Can Open
In addition to setting up a separate business account, you should also be aware of the other types of accounts that are available. Depending on your business needs, you may be able to open a savings account that offers higher interest rates or a money market account.
A money market account is an interest-bearing account that is offered by a bank or credit union. On the other hand, savings and checking accounts are typically used to store money that you don’t need right away.
You may also want to open a certificate of deposit (CD), which is a type of savings account that offers higher interest rates and requires you to deposit a fixed amount of money for a specific period of time.
Regardless, knowing how much cash you need to set up an emergency fund is an important starting point. With the right financial strategies, you can ensure that your business always has sufficient cash on hand.
Consulting with a financial advisor can help you choose the best accounts for your unique situation. They can also provide advice on how to best manage your cash flow and ensure that you have the reserves necessary for an emergency fund or other future expenses.
You Can’t Be Too Prepared
Having cash on hand is never a bad thing, especially in times of recession. Aim to have at least 6-12 months of expenses saved up as cash on hand in case of emergency or financial hardship.
By keeping your books up to date, simplifying your accounting system, separating business and personal finances, and leveraging other resources, you can ensure that you’re always prepared.
With the right preparation, you can make sure that your cash flow is managed properly and that you’re always ready for whatever life throws at you.
Don’t forget that having an emergency fund and staying organized with your finances are key to success. Having a solid financial plan in place will help give you peace of mind and allow your business to thrive.
If you want to partner with a professional bookkeeping and accounting agency, our team at Williamson Tax & Bookkeeping is here to help. Get in touch today to learn how we can help you set up your finances and manage your cash flow.