What is a financial reserve?

A financial reserve is any amount of money that is kept purely for the purpose of having cash on hand in the event of unexpected changes, developments, or emergencies. It is often used in the context of personal savings: financial advisers suggest that every person keep about six months' salary on hand in his or her bank account so that he or she has the money to cover circumstances like losing a job, repairing a car, or paying for a hospital visit. However, fewer than half of Americans report having at least $1000 in their savings accounts. By comparison, businesses do not necessarily need to keep large cash reserves, since it is much easier for them to raise money by borrowing or leveraging equity.