4. Now's the time to build up your cash reserves

The scarcest things in any financial crisis are cash and credit. That's why, even as the country becomes reacquainted with words such as frugal and responsible, you should be careful about paying off debt if it leaves you cash-poor.<br>
<br>
Banks are cutting credit lines using a variety of excuses - late payments, drop in home value and so forth.<br>
<br>
Paying down a home equity line or credit card balance will make you feel virtuous and save interest costs. But if the bank yanks your line and you can't get the cash back out, you might have regrets.<br>
<br>
So if you typically pay extra each month on your mortgage or home equity line, it mightmake more sense to divert those extra dollars to build up your cash balances.<br>
<br>
The first thing personal finance pros always say is to keep emergency cash on hand - ideally enough to pay four or six months of expenses. That's very difficult for many households.<br>
<br>
But a cash stash is doubly important in this economy. Jobs are insecure for many workers. Your paycheck might stop, but the bills won't.<br>
<br>
Households should tailor cash management to their needs. If there are two income-earners in a relatively damage-free industry such as health care, the need to accumulate cash might be less than for a one-earner family where the breadwinner works in, say, mortgage finance.<br>
<br>
Don't ignore the debt you have and make sure you're current with your monthly payments.<br>
<br>
But if your budget allows you to handle those costs and then some, don't be in a hurry to get debt-free either.<br>
<br>
<i>-- Jay Hancock</i>

( AP photo / October 23, 2006 )

The scarcest things in any financial crisis are cash and credit. That's why, even as the country becomes reacquainted with words such as frugal and responsible, you should be careful about paying off debt if it leaves you cash-poor.

Banks are cutting credit lines using a variety of excuses - late payments, drop in home value and so forth.

Paying down a home equity line or credit card balance will make you feel virtuous and save interest costs. But if the bank yanks your line and you can't get the cash back out, you might have regrets.

So if you typically pay extra each month on your mortgage or home equity line, it mightmake more sense to divert those extra dollars to build up your cash balances.

The first thing personal finance pros always say is to keep emergency cash on hand - ideally enough to pay four or six months of expenses. That's very difficult for many households.

But a cash stash is doubly important in this economy. Jobs are insecure for many workers. Your paycheck might stop, but the bills won't.

Households should tailor cash management to their needs. If there are two income-earners in a relatively damage-free industry such as health care, the need to accumulate cash might be less than for a one-earner family where the breadwinner works in, say, mortgage finance.

Don't ignore the debt you have and make sure you're current with your monthly payments.

But if your budget allows you to handle those costs and then some, don't be in a hurry to get debt-free either.

-- Jay Hancock

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