What are secondary reserves?

Secondary reserves are any type of cash assets that can be quickly accessed if necessary. In many cases, cash reserves of this type are invested in short -term securities that receive some interest, which effectively allows these assets to work for the investor, even if they are currently not active. As the name suggests, secondary reserves are called, if primary reserves are exhausted or are not enough to resolve any situation of immediate debts.

It is not uncommon for secondary reserves to be known as excess reserves. This term concerns the fact that assets are not required for the daily operation of the budget of the household or company and as such do not commit themselves to settle any specific type of debt or expenditure. These extra or excess resources can be maintained as secondary reserves that can be placed in some kind of interest account or invest in an asset that can be quickly and easily disposed ofD that will be needed. One example of the use of secondary reserves to create interest and maintain quick access to funds is to purchase state accounts, as these can be reimbursed relatively easily.

building some kind of secondary reserves is a good idea for almost any type of financial situation. For households, reserves of this type can be used to solve sudden expenditures that are not taken into account within the budget. This could include the drawing of funds to manage the unexpected travel expenses that arise due to the family emergency situation. Similarly, the company should create secondary reserves that can be invited if a type of disaster temporarily reduces the company's ability to engage and generate income to cover operating costs.

Because secondary reserves are assets that are not needed to manage everyday expenditure, households as a companyThey can create these reserves from what is called excess. The excess is simply the money that remains as soon as all the obligations are settled in a month. By taking part of this surplus and use it to purchase a high level of liquidity or storing money on some kind of interest account, these reserves can be gradually created and create a financial pillow that could be very useful in the future.