Personal Finance Tips: Creating a Cash Cushion
Managing your finances is an important step toward a secure future, but 61 percent of Americans live paycheck to paycheck, and more than 60 percent have no “rainy day” fund for emergencies. Follow these personal finance tips to see how you can begin to create a cash cushion in case of emergency.
Having a cash cushion in your checking account provides security for several reasons:
Cash cushions help you avoid overdraft fees.
More funds at your disposal provide a greater sense of security against any unplanned expenses.
If your cushion is big enough, it simplifies finances: You don’t have to worry about accidentally overdrafting if a bill is automatically deducted or if you want to make a spontaneous purchase.
Set a baseline dollar amount that you won't go beneath, and establish a budget from there. How much of a cushion you should have depends on your current financial situation: How stable is your job? How big is your family? What kind of expenses do you expect to incur? How much do you have saved in an emergency fund? All of these questions should factor into the additional funds you'll need in your checking account.
Some argue that having a cushion means that you are simply sitting on money that could otherwise be invested or put into savings. While it is important to consistently save and invest your money wisely, having a cushion will help if you lose your job, if you have an accident or unforseen out-of-pocket medical expenses, or if your car breaks down and needs major repairs. You really can never know what money matter may be the next hurdle in your budget.
Establishing a cash cushion in your checking account is just one of many personal finance tips to help you manage your finances more effectively.
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