Definition
Money set aside for emergencies or short-term goals. It’s typically kept in an easily accessible account like a savings account.
What to consider
- Weigh the need for extra cash against the long-term cost of refinancing.
- Consider how the new loan changes your monthly payment.
- Make sure the extra funds are used for important needs.
Real world scenarios
- Hannah sets up an automated transfer, building her cash reserve gradually until she has three months’ living expenses set aside.
- Andre taps into his cash reserve when faced with an unplanned medical bill, avoiding expensive credit options.
- Neela’s small but growing reserve eases her worries about job security, giving her more confidence at work.
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