Short on Cash? Carefully Consider Your Options
Dear Carrie: I find myself in the unfortunate position of needing some cash in the midst of this horrible pandemic and the resulting market decline. I have a small emergency fund, but that's not enough. What's the best way to generate additional cash? -- A Reader
Dear Reader: First, congratulations on having a rainy day fund. Even if it's not enough, simply having a savings account shows you're planning ahead. Emergency savings are your first and best line of defense. But sometimes when it rains, it pours, and in really tough times, you can be left short of what you need. Let's talk about some options.
Take Stock of What You've Got
Before you start pulling funds from any account, don't forget that help may be on the way from the federal government including direct payments of $1,200 to individuals ($2,400 to couples), plus an additional $500 per child, for individuals earning less than $75,000 ($150,000 for couples). If you still need cash after taking this one-time payment into account, take a moment or two to look at all of your accounts. Are you forgetting anything? You might be surprised at what you find. This is a little like checking under the cushions for loose change. Having a complete net worth statement and consolidating accounts can make this easier.
Then take a look at the different accounts you have set up for specific goals. They will have varying rules for withdrawals as well as different tax implications. With this big picture in mind, you'll be better able to make the best decisions.
Checking, savings and money market accounts are the best place to start for several reasons. First, you can withdraw money from checking accounts at any time, although money market and savings accounts may have a few more restrictions. (Typically you're allowed six "convenience" or electronic/online transfers or debit card withdrawals per month.)
Second, since your money is in cash, you generally don't have to worry about timing (although cashing in certain accounts like CDs before they mature could cause you to forfeit interest as a penalty). And, finally, tax implications for these taxable accounts are very low.
Next, Consider Brokerage Accounts
Your next option might be other taxable accounts like a brokerage account. The big gotcha is that because your money is likely invested in stocks, bonds, mutual funds and exchange-traded funds, you may give up future gains or lock in losses by selling sooner than you had planned.