I will admit that I have found myself, at times, in both situations. I had a devastating casualty event occur at a commercial property. Thankfully, at that time, I was sitting on $50,000 in cash which made it a whole lot easier to handle. I’ve also found myself, however, as the broke rehabber trying to squeeze out another $1,000 line of credit from Home Depot to finish a rehab that was already losing money. Let me tell you, having cash reserves is far better.

Some of you may say, “But Jeff, inflation is going to eat away at the purchasing power of that money.” I realize that, but I’m not talking about having large amounts of cash. I’m talking about having cash reserves of maybe 10-15% of your active investment portfolio. This is especially important if you are engaged in the business of private lending. You need to have cash reserves of maybe 10% to back up the outstanding loans in case one of them goes bad.

Does the money have to be sitting in a savings account making little to no interest? No, but you should be able to put the money into a demand account, such as a money market account, and make close to 5% on it. You might want to put that reserve money into something else that can quickly be made liquid. My reserves are not all in cash, but they can be turned into cash in three business days or less. Having those reserves has allowed me to sleep much better at night and be prepared to take advantage of a good opportunity when it shows up.

Let me tell you a story about a man who had cash reserves at the right time that enabled him to seize a good opportunity. In the Old Testament book of Ruth, we read about a mighty man of wealth named Boaz. In the final chapter, we see that Boaz, who had recently sold his harvested barley and wheat, had the cash necessary to buy back a piece of valuable, income-producing real estate. In so doing, he secured a bride for himself, and his future heirs would inherit the land he had bought back for an extended family member. Boaz was able to take advantage of an important opportunity at a critical time because he had the necessary cash on hand.

Cash reserves are a good safety net for handling things when they go wrong, and they will. It’s also a wonderful tool to use when good opportunities must be acted upon quickly.

Jeffery S. Watson is an attorney who has had an active trial and hearing practice for more than 25 years. As a contingent fee trial lawyer, he has a unique perspective on investing and wealth protection. He has tried over 20 civil jury trials and has handled thousands of contested hearings. Jeff has changed the law in Ohio four times via litigation.  His articles are also regularly featured the RE Journal.  Read more of his viewpoints at WatsonInvested.com.