No matter how financially disciplined you are or how well you plan, the simple fact is that you can’t predict the future.
Cars break down, things break, people lose their jobs and injury and illness can strike at any time – all of which can have a significant impact on your businesses financial wellbeing.
This is where a rainy day fund that you can easily draw money from can come in handy. You are able to cover unexpected costs without going into debt or sacrificing other items from your budget.
Here are some ways you can better set yourself up to cope with any unexpected expenses.
What is a rainy day fund for?
A rainy day fund is money you set aside to cover the unforeseen expenses that arise when something goes wrong. Also known as emergency funds, rainy day funds usually take the form of savings accounts and can come in handy in a wide range of situations.
How much do I need in a rainy day fund?
There’s no “one-size-fits-all” answer to this question. You’ll need to consider your fixed costs for the week and month as well as any reoccurring supplier invoices.
Financial experts generally advise keeping the equivalent of anywhere between one and three months of your regular ongoing expenses set aside in an easy-to-access account. But rather than relying on a rule of thumb, it pays to sit down and consider exactly how much money you would need to maintain financial security in a range of situations.
Make sure your rainy day fund isn’t just sitting in a transaction account earning zero interest. Compare high-interest savings accounts that offer easy access to your funds. These accounts make your money work harder for you and will help you grow a larger rainy day balance, while also allowing you to access your money quickly when an emergency arises.
It's a good idea to set up a separate account for your emergency fund, which will mean you're less tempted to dip into it for everyday expenses.
Reduce your expenses
There are many simple ways that we can tighten our financial belt.
From switching utility providers to find a better rate to ordering office supplies in bulk, you can put these extra savings towards your rainy day fund.
The best way to work this out is to build a strong budget and stick to it. Speak to a financial professional about ways to budget for your business.
Low risk investment
There are many ways to invest that have smaller returns than others but are extremely low risk.
By placing your savings into safer investments, you can often get higher returns than the bank’s interest rates.
Speak to your finance professional about how you can get started.
How small business owners can use Capital Raising to prepare for a rainy day
Most people know they have equity in the property that they own, but did you know that small business owners can unlock equity in their assets as well?
You can tap into this equity on a rainy day, when unforeseen expenses arise or other fees, taxes or expenses come around that you don't have cash on hand to pay for.
The best part? There are taxation benefits in Capital Raising as well.
To learn more about Capital Raising and preparing for a rainy day, contact the team at Morris Finance today on 03 5223 3453.