How much cash should you keep on hand in your personal and business life? Well, that question can be difficult based off everyone’s circumstances, but I want to provide an overview of what you should generally do in terms of maintaining a certain cash reserve.
If you have been following The Elite Nurse Practitioner for a period of time, you probably understand why I advocate for having a solid emergency fund in your personal life and your business. Listen, bad things WILL happen in your life, and you better make sure you have the cash reserves on hand to cover misfortune in your personal and business life. I have written about this before, but ensure you always have a MINIMUM of 6 months of personal expenses in the bank and 3 months of business expenses in your practices account.
Outside of the emergency fund, how much cash should you have?
First off, never just keep cash sitting around. It is a dumb financial move. With inflation soring, your savings are losing value MONTHLY. You need to be investing your money into cash flowing and appreciating assets. This is how you build long term wealth.
Personal cash reserves: In my opinion, I think you should always maintain 5-10% of your net worth in cash if you are actively investing. Why? Because you never know when certain opportunities might present themselves. For example, I have a friend who is a real estate land developer. He approached me last year as he was looking for investors for a $2 million land development project. Luckily, I had the minimum investment amount for the deal because I always keep cash on the sidelines for opportunities. I am glad I did as I will earn a 15% return on this for doing nothing but providing the money. That is a better return on investment than what the stock market is currently providing!
So, if you have a net worth of $500,000, then keep $25,000-$50,000 on the side lines for investment opportunities. Everything else should be actively invested into your retirement accounts, brokerage accounts, real estate, and so forth.
Business cash reserves: Outside of maintaining 3 months of practice expenses in the bank in addition to saving 30% of profits for your inevitable tax bill, you should always keep 2-3 months of profit in the bank for reinvesting back into your business. What do I mean by this? You should have enough money in the bank to invest in continuing education, new devices/products, new marketing strategies/campaigns, and various other activities that will help you GROW YOUR BUSINESS! By reinvesting money back into your business, you will help accelerate its growth which will ultimately help you build a business that WORKS FOR YOU.
Outside of this, every other dollar of profit your practice generates needs to be distributed to you so you can then use it to live your life and invest for the future.
That is it! If you follow the above advice, you will not only have a financially redundant personal and business life, but you will also make your money work for you and build a wealthier life!
Great article, education and advice, as always!
You are very welcome! Glad you enjoyed the tip 🙂