Savings, as boring as they are, matter. Why?
Because there are two things that you can absolutely expect to occur:
- Unexpected expenses.
- Opportunities to invest.
Job loss has hit my family and millions of others, and you never know what will happen with the economy. Especially if you have other mouths to feed, it is extremely important to be prepared for the worst.
Having an emergency fund gives you 3 things: flexibility, security, and peace of mind. These are all important components of being wealthy.
So, how much do you need? The answer is, as usual, it depends. Personal finances are personal, but here are some guidelines that you should consider.
Goal #1. $1,000
In college, I was broke and always had less than $100 in my checking account. My first goal after getting a job was to hold $1,000 in my checking account. It wasn’t much, but it saved me on those overdraft fees… but more importantly, it started to give me peace of mind with my daily expenses and bills, which is priceless.
With $1,000, you can definitely handle most expenses and short-term situations.
Goal #2. $10,000
This is a lot more money, and can be months and months of expenses if you’re smart about it. Once you get up to this level, I definitely suggest going with a savings account to earn more interest and put that money out of sight so that you don’t waste it.
After I hit goal #2, this is what my situation then looked like:
$1,000 or more in checking account (to pay credit cards, checks, get direct deposit from my corporation)
$9,000 in high interest savings account.
(Note, money market accounts are another option. They will give you a slightly higher interest rate than savings, but there can be fees or minimum balances required.)
Goal #3. 6 Months of living expenses.
If you have six months worth of expenses for you and your family saved up, then you are sitting in a very comfortable position. Sock this money aside, and check online interest rates annually to make sure that you’re making a very competitive return. Other than that, you don’t have to do anything with this money.
If a major opportunity or expense comes up, then pull money out… but never touch it otherwise.
Goal #4. Even more…
Some businessmen suggest having a lot of cash stored away to be ready for big opportunities. I put any extra money into the stock market, as that is my growth vehicle, but will also get back into real estate later this year.
- The best site for comparing online interest rates.
- GE Capital
- High interest savings account – this is who I use. I currently I get a 0.95% interest rate, which is well above my checking account rate that is with Chase Bank.
- Make a savings goal and put it on your calendar when you’re going to achieve that goal.
- Check your current interest rate with your checking and/or savings accounts.
- My guess is that you’ll be surprised by how low they are.
- Open a free online savings account and store money away there.
- Find the best one for you at bankrate.com.