You have six months’ income in the bank earning a paltry amount of interest. You have given your consumer debt the 1-2-3 punch. You have learned to live on what you make and still have money left to save. Now, what?
Make the Move
No, do not call a moving van…Move your money to a more lucrative investment vehicle. Time to tap your financial adviser. You are going to start over, but this time, without the coins.
Instead of adding to your savings as before, you are going to start a new savings in the same account. Take your monthly savings for deposit and withdraw one-half of what is already there. What you withdrew needs to move to a higher yield account. You have done without this money, and it needs to be working harder. Get advice on the following:
- Certificates of deposit (CD)
- IRA and Roth IRA
- 401(k) supplemental deposit
- Money market
Since these are not as easily accessible as your savings account, you will still need your banked three months’ income to keep your emergency funds readily available. Each account offers benefits from higher interest to tax savings. The risks are different for each of them, so your financial adviser will help you choose where your risk tolerance is based on occupation, age, debt/credit ratio and other factors.
When you have the late-August day which begins with a flat tire and ends with the air conditioning blowing 86 degree air in your home, you immediately think your emergency funds are coming out of the bank. Before you write the withdrawal slip, how can you absorb some of the $1,276 shock to your wallet?
- Unbanked savings
- Disposable income
- Payment plan
Begin with the money you have saved, but have not added to the account. Add to it the money you can slash from this week’s budget. Even if all you can cover out of your pocket at the moment is the tire, you are ahead of the emergency funds game.
Will the air conditioning repair company work with you on a payment plan? Breaking up the hefty repair bill means you will need to tighten your belt over the next few months, but can mean your money stays put. Can you negotiate a payment equal to what you bank each month?
Using money for an emergency before you bank it means the banked money stays put…earning interest.
Still Need Emergency Funds
You did your wheeling and dealing and came up $400 short. Take the money out of your emergency funds, but have a backup plan for repaying it. Tighten your belt to accelerate saving money to expedite your repayment. That money has a job to do. The sooner you pay it back, the sooner it gets a promotion.
What can you cut out of your week to help you speed up saving money? How much would it save you?
Next, we decide if you are done saving emergency funds.
See all posts in the Emergency Funds Series.
(c) Ann Marie Dwyer 2011
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