New York - Every individual should ensure they have enough liquid funds to meet emergencies or other quick cash needs. Before sticking to the general rule of thumb that says you should keep four to six months worth of living expenses in cash, you need to consider the following?
Do you have equity in your home? - If you do, you may be able to easily obtain a home equity line of credit. Most large banks are able to approve and fund equity lines of credit within 30 days of application. This will reduce your required cash on hand needs. Almost all individuals should contact their bank to determine the cost of an equity line of credit and should consider securing one prior to needing cash.
Can you obtain a margin loan? - If you maintain a brokerage account - you should consider applying for a margin account. A margin account secures a set percentage of your stocks and bonds as collateral and allows you to borrow with no payment terms for usually reasonable interest rates. If your stock portfolio declines a defined percentage - you may be required to pay back certain amounts via a margin call.
Do you have CDs? - If you do, you can tap into your certificate of deposits. You will pay a penalty of three or six months worth of interest but you should contact your bank for the specific amount of penalties. It may be less expensive to withdraw the CD than to take a loan.
Can you borrow from parents / friends / relatives? - Although you may not want to borrow from individuals, your ability to do so should be considered in determining the level of cash you can keep on hand.
Can you sell your securities? - If you have stocks and securities - you can sell them. Be aware that if you sell securities for cash flow purposes - you may have to pay capital gains taxes if you are selling stocks with built up gains. When selling stocks for liquidity purposes - consider selling stocks that will generate capital loss deductions.
Can you borrow from your IRA or 401(k) or 403(b) plan? - Although this is an aggressive move - you can withdraw money from an IRA account once a year so long as you put the money back into a new IRA account at the end of 60 days. This method should be used as a last resort and with careful consideration. Loans from retirement plans such as 401(k) plans generally take 30 to 60 days to process. Your plan will have exact requirements.
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