Why Build a Cash Reserve?
A cash reserve helps us meet short-term and emergency expenses. Depending on the riskiness of our situation, we need to save from three months up to two years worth of expenses. To build this in a major way we might:
- Cut unnecessary expenses
- Sell any unused items
- Find an additional source of income
By the same token, looking for small opportunities makes sense too.
Build a Cash Reserve with Spare Change
If you struggle with building a cash reserve then consider starting small. Even something as little as spare change can make a difference.
Do you own a coin jar? I fill one up a few times a year. After much procrastination, I convert the coins to dollars for a small convenience fee using Coinstar.
Tip for saving with a coin jar: ever since I stopped adding pennies it makes the overall savings total higher.
Coin Star machines automatically count up change at participating centers and print a receipt. Take the receipt to a cashier to pick up savings in dollars!
Using this method to gather savings on a tight budget makes sense but another way can help us reach our target better.
Build Bigger Savings Better with Automation
In an increasingly cashless society, opportunities for gathering spare change decrease every day. What can we do to take advantage of an opportunity to build a cash reserve?
Fortunately for you, I found an app version of the coin jar through Acorns. The service charges a low monthly fee to automatically round-up change in a bank account. After rounding every expense it places your money in an interest bearing account.
Acorns makes withdrawals in set increments with options to contribute one-time and recurring deposits. Equally important to finding savings, finding a way to remove the work required to save makes a huge difference!
Please note that the withdrawals process takes a few business days.
Acorns also welcomes credit cards. Always pay off the balance of the card in full after your statement but before interest accrues on the card.
Interest on a Coin Jar vs an Interest Bearing Account
First of all, a coin jar earns nothing and actually loses value with inflation. In the last 20 years the purchase power of cash actually reduced to one half of its original value.
With investments, money gets placed in accounts that rise and lose value daily. In the long term, however, any money placed at least gets the opportunity to retain its value.
The past does not indicate the future, but even so, $1 invested in a fund like the S&P 500 Index 20 years ago rose to a value of $3 today. In the same way, a fund on Acorns may provide the opportunity not only to retain but earn.