Savings
bank savings accounts1.
I believe Cash flow is the a process meant to manage a family's or individual's income and expenses, and ensure funds are available for savings and investment. If expenses exceed income on a regular basis, achieving one's financial goals, such as retirement at a certain age or paying to send children to college, will be difficult to achieve.
A cash flow management plan can allow for discretionary spending, while helping clients manage upfront expenses and still save for their long-term goals.
Your Financial Formula
One of the goals of a sound financial strategy is to find the appropriate mix of investments2. At the bottom of our illustration are cash alternatives. As you move higher up the illustration, each section represents the opportunity for higher potential return, but also carries higher risk.
The reason why cash alternatives are at the foundation of a well-balanced portfolio is that cash alternatives allow you to meet short-term and unpredictable expenses. Having cash and cash alternatives also may allow you to manage other investments — rather than selling at what could be an inopportune time.
Where to Put the Money
For that portion of a portfolio that must be liquid, most investors consider one or more of four places. Each has drawbacks and advantages.
1Savings Accounts are FDIC insured up to $250,000 per depositor per insured depository institution. CDs are FDIC insured up to $250,000 per depositor per insured depository institution.
2Securities offered through NYLIFE Securities LLC (member FINRA/SIPC), A Licensed Insurance Agency. NYLIFE Securities LLC is a New York Life Company.
Traditional bank savings accounts (savings, checking), are both guaranteed, up to certain limits, by the FDIC. However, traditional bank account returns are modest at best.
SourceCertificates of deposit, on the other hand, are time deposits offered by banks, thrift institutions, and credit unions.
SourceMoney market funds are investment funds that seek to preserve the value of your investment at $1.00 a share. Money held in money market funds is not insured or guaranteed by the FDIC or any other government agency. It's possible to lose money by investing in a money market fund.
SourceDebt-based instruments Investors lend money to the government and are paid a specific rate of return. Some debt-based instruments are backed by the full faith and credit of the federal government as to the timely payment of principal and interest.
SourceHow Much Do I Need
At any stage in life, it is wise to reserve enough cash on hand to cover your expenses in three areas:
Replace Income
First,replacing your income for a short period of time in the event of job loss or a loss of investment income. A good rule of thumb is to have enough on hand to replace your income for three to six months.
Emergency Allowance
Second, Allowing for emergencies that may occur, such as a catastrophic illness or an accident.
Upcoming Expenses
And third, having cash on hand for upcoming large expenses, such as a wedding or an extended vacation.
Securing your dreams, I believe, starts with a financial plan To see your dreams become a reality, it is important to begin with a sound, yet flexible financial plan. The plan must be specific to you, your goals, and begin with where you are today and put you on a path toward where you want to be tomorrow. We can help you do that.