In my previous post, I talked about how Cash is King. I ended the post by discussing the topic of building a cash reserve.
I’ve heard people say that I can’t afford to build up cash reserves. My reply is you can’t afford to not build up a cash reserve. If you don’t build up a cash reserve it is just a matter of time before you run into an emergency and you need to purchase equipment, inventory, etc. so that your business can operate according to your plans.
If you think you can’t afford to build up cash reserves, then it probably means one of two things:
- The business is not generating enough sales.
- The business is spending too much money.
I don’t think anyone should wait to save money. If you put of saving money now, you will continue to put off saving money until you need the money. The only way to save money is to save money.
There are two important aspects of saving money:
- Start now
- Have a separate bank.
Start now. Maybe you start with $1 a day. Maybe $100 a day. Maybe $100 a week. Start now so that you can establish a habit. Make it automatic. One of the things I do each month I transfer 10% of my deposits each month to a separate bank account. When I first started the habit, I transferred 10% of my daily deposits to my business savings account. I did this simply to start the habit of saving money. The main reason I did this was to physically separate my money.
Having a separate savings account forces me to spend less money than I earn in my business. When I look at the business checking account, my thought is this is the money that I can spend. I don’t look at my savings account. I worked hard to save that money so I don’t spend it until I need to or want to.