The Importance of Deposits in a Financial Plan

When considering financial planning, it’s easy to focus on investments, pensions, or property. While these are crucial components of long-term wealth building, an often-overlooked element are deposits. Having the right level of cash reserves is fundamental to financial security and can play a powerful role in your overall financial strategy.

Why Cash Matters

1. Emergency Fund
   Life is unpredictable. Job loss, illness, a broken boiler or other unexpected expenses can arise at any time. A cash buffer ensures you can manage these situations without needing to sell investments at the wrong time.
2. Flexibility
   Cash deposits give you choices. Whether it’s taking advantage of an opportunity or covering a short-term need, liquidity provides peace of mind and avoids unnecessary financial stress.
3. Stability in Volatile Markets
   Markets move up and down. Having cash set aside allows you to ride out volatility without being forced to sell investments at a loss. Cash savings are a safety net that supports long-term strategies. For example, keeping around two years’ worth of income in cash when drawing flexibly from your pension will help you ride out market movements and secure income in the shorter term.
4. Planned Expenditure
   For big upcoming expenses, such as home improvements, gifts to children, or a new car, deposits ensure that you are not dipping into long-term investments, which should remain untouched to grow over time.

Balancing Cash with Other Assets

While cash is essential, holding too much for too long may mean missing out on growth opportunities, especially with inflation eroding its purchasing power. The key is finding the right balance, one which suits your individual needs and will not cause you any undue stress. The right balance is enough to provide security and flexibility, but not so much that it holds back your long term financial progress.  The correct balance is different for everyone, depending upon your circumstances and plan.

Summary

Cash is more than just money in the bank; it’s an integral part of an effective financial plan. By maintaining the right level of cash deposits, you gain peace of mind, flexibility, and protection against life’s uncertainties.

For guidance on how much cash you should hold, and how it fits into your broader financial strategy, speak to your Beechwood adviser.