March 30, 2020
You already know that things are not normal right now. Many people have been unable to work and this can cause financial problems, not just for employees but more so for small business owners.
Anytime there is a work stoppage, regardless of the reason, things get tough for those who are involved. They may or not feel it right away but if the income is reduced or stopped for an extended period of time, there isn’t money to do all the things that are considered normal to those people who are affected.
Ideally, we all have cash reserves that can carry us through the tough times. But not everyone does. According to an article on SmartAsset.com in August 2019, the median savings account balance for people under the age of 65 is less than $5,500. Even if you live alone, that isn’t enough to keep going for long without some additional money coming in.
We would all love to have tons of money saved and available but the fact is that not many people do. A simple way to create your savings is to put a set amount aside each month. This could be a specific amount or it could be a percentage of what you make. You can also add unexpected or unneeded funds aside, things like tax refunds.
If the savings account balance is low, the other alternative is to have some available credit as a backup which everyone should have anyway. And when I say everyone should have available credit as a backup, I am not talking about have a Macy’s card with a $500 limit because that isn’t going to buy groceries or pay the water bill.
I’m not talking about getting another mortgage either. While I would love to do a mortgage for everyone, it is not only impractical, it is also not the kind of credit I am talking about. What I mean is that you should have credit cards.
Not cards to run up to the limit so you can buy stuff that looks interesting or would be cool to have. These are cards that can be used for a rainy day. They are part of your backup plan.
I recommend that you have at least 3 times the available credit that you ever expect to need. The reasons are simple.
First, if you have that much credit available, it won’t hurt your credit score when you use it. Keeping your balances below 30% of the available credit on your cards is ideal when considering your credit score.
Second, in an emergency, if you need to use more of your credit than expected, you still have more space available and don’t have to get too worried about it. This can give you the much needed flexibility to handle unexpected problems.
Third, if you have more available credit than you need, you can take advantage of opportunities that may be presented to you. If you are a business owner, this could mean the difference between growing slowly and being able to jump on an opportunity to grow more quickly.
The bottom line is that if you have savings and credit, you are in a much more secure position than if you are missing either one. This security can make the difference between panicking or not panicking when things go sideways.
Share this post: