One of the hardest and biggest challenges most of us have when it comes to personal finance is creating or growing a well-funded emergency savings account.

But what if it didn’t have to be hard?

We often overlook one of the best ways to create or grow an emergency savings account, by using things and accounts we may already have.

It’s a concept known as “repositioning current assets.” Current assets are any and all things you own that can easily be turned into cash within a year.

What is current asset repositioning?
Repositioning of current assets refers to using certain assets you now own as a potential source of cash reserve funds. These are assets that are either in cash form (e.g., a savings account) or that can be converted to cash relatively easily.

Converting to cash may entail selling, redeeming (as with bonds), or other means.

Because a cash reserve, by definition, is a source of emergency funds, you must convert assets you wish to use that are currently not in cash form. It is far wiser to do this before a crisis hits, when you can take the time to consider your decisions.

Review assets that could be repositioned to help build a cash reserve
Before listing the current assets you might consider as potential funding sources, you will want to briefly review which types are most appropriate.

Doing so often leads to consideration of assets that might otherwise be overlooked.

Keep an open mind at this stage, and think creatively. You are merely looking for the possibilities. Only later will you decide which assets, if any, to use as a cash reserve.

Basic savings
Some people hold substantial amounts of money in ordinary savings accounts.

While holding a limited amount of money in a basic savings account is often desirable for liquidity, you generally should consider whether there may be other ways to manage at least a portion of that money.

Special purpose savings
Many savings accounts are established with a special goal in mind. Common savings objectives include education, vacation, travel, major gifts, the
down payment on a home, or payment for a major purchase.

When the timing of these goals is not critical, part or all of the savings already accumulated to date in these accounts might be repositioned to a cash reserve. The sspecial-purpose account could then resume its growth.

Newlyweds John and Janice have been saving to purchase their first home. They use their employers’ direct deposit plan, so their checks are automatically deposited to their joint checking account. They have also arranged with the bank for a monthly automatic transfer of $2,000 to a special savings account set up to accumulate the down payment for a home. They keep only small balances in their checking and basic savings accounts–their only other source of liquidity. John and Janice should consider repositioning part of their existing new home savings to a separate cash reserve. Failure to do so would leave them with no emergency funds whatsoever if they decide to purchase a house. Once their cash reserve reaches an acceptable level, they can again direct their savings toward the down payment on a home.

Maturing certificates of deposit, term deposits, and other fixed-income investments
In a fixed-income investment, you effectively loan your money for a specified term, at the end of which the borrower agrees to repay you the original amount (principal) plus a stated amount of interest.

Fixed-income investment products come in many shapes and sizes. They include bonds; Treasury bonds, notes, and bills; and certificates of deposit (CDs), and other types of term deposits (savings vehicles that require that funds be deposited for a specific length of time).

When you have a fixed-income investment that is about to mature or whose term is about to expire, the principal and interest might provide yet another source of funds for a cash reserve.

You can automatically reinvest (roll over some fixed-income investments (e.g., certificates of deposit) by directing the holding institution in advance. If a deposit has been set up for automatic rollover, you can stop the next rollover by notifying the institution in advance. The cash will then be available for transfer to a cash reserve.

Tangible items
Tangible items, by definition, are objects other than cash. Among your possession,  you may find some that have reasonable monetary value but little remaining practical or sentimental value.

Selling these tangible items for cash may be easier done at a time other than when you’re already experiencing financial need and high stress. Here are some categories to think about:

  • Antiques (dolls, furniture, tools, toys, etc.)
  • Art (paintings, drawings, prints, sculpture, etc.)
  • Computer hardware that is no longer used
  • Collections (stamps, coins, glass, china, silver, etc.)
  • Equipment (shop, farm, gym, etc.)
  • Furniture that is no longer used
  • Jewelry that is seldom worn
  • Musical instruments seldom played (piano, guitar, drums, etc.)
  • Oriental rugs
  • Rare books
  • Vehicles (cars, trailers, boats, etc.) that are no longer used

These funding sources may involve payment of incremental taxes, such as sales and capital gain taxes, that must be taken into account when estimating their value.

Questionable or marginally performing investments
Many of us have one or more investments that represent money we could put to better use. Perhaps it’s an investment that’s had an extended lackluster performance.

Maybe it’s some inherited stocks that show little chance of significant appreciation. Selling such investments can enable you to make better use of their present value in either a cash reserve or a more productive investment.

These funding sources may involve payment of incremental taxes, such as sales and capital gain taxes, that must be taken into account when estimating their value.

Life insurance cash value
This item applies only when changes to existing life insurance coverage are contemplated. Cash value life insurance is a popular approach to life insurance.

It differs from term insurance in that the insurer invests part of each premium payment on the policyholder’s behalf. The invested amount accumulates a cash value throughout the term of the policy.

The cash value can be used as income in retirement, or it can be borrowed when needed. If the insurance part of your financial plan calls for terminating or replacing an existing cash value policy, you can deposit the cash you receive into your cash reserve.

This funding source may involve payment of income tax on the difference between the cash value of the policy and your basis in the policy. This tax must be taken into account when considering termination of a cash value life insurance policy.

Once you have identified the different types of current assets you might use to fund a cash reserve, you should prepare a list of those you would consider relinquishing. In this step, determine and weigh any sentimental value the assets hold for you or those close to you.

It is usually a good idea to exclude those having anything more than slight sentimental value.

Determine each asset’s value and decide which best suit your cash reserve plan
You can easily determine the value of cash and near-cash assets, such as bank accounts, certificates of deposit, and fixed-income investments.

Other items, especially tangible property, often require some research. You may need to obtain a qualified appraisal or research newspaper ads and other sales media to how much others are asking for comparable items. In some cases, you may only be able to estimate the actual value; if that’s the case, err on the conservative side if necessary.

Review your list of assets and their respective values, and decide which might be most useful for funding your cash reserve. Include their total value and incorporate that amount into your cash reserve implementation plan.
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