An Advanced Guide to Money Management
Thursday, 7 June 2007
part 1
Wow! So now you have all this extra cash! What do you do now? No, stay away from the mall. :-) Save it! The easiest way to do this is to arrange it with your bank that a set amount gets taken right out of every check and put into a "safety net fund". This can be a savings account, Certificate of Deposit (CD), or a money market account. The differences between these options are 1) the availability of your money - CD's have terms as little as 3 months, savings accounts are instantly available, and money market accounts generally go through brokers - so you may have to wait a couple of days for your money - and 2) the earnings your money will make - CD's are usually your best option for earnings, but check out what your bank offers. A normal savings account doens't usually offer a great rate of return. Wight the pros and cons of each option and find one that works for you. Both of these options are covered by the government if anything happens to the bank - stocks aren't, and that's why I wouldn't recommend stocks as a good place to put you safety net.
Everyone should have a "safety net fund" set up. What happens if you get laid off? You don't want to spend on credit cards and pay it all back - plus 18%. You don't want to move back with Mom and Dad (and believe me here, they don't want you to move back either!). Putting away now for a rainy day will make all the difference in the world when life throws you a curve.
But - how much will you need? Well, this all depends on your own personal level of comfort and what you plan for the future. Most financial consultants will tell you to squirrel away at least 3 - 6 months worth of living expenses (depending on your comfort level), but the rest is up to you. Do you want a new car in a few years and don't feel like paying all that interest back on a car loan? Do you want to have a really cool 3 month vacation to Cairns, Australia to see the Great Barrier Reef in 2 years? Are you getting married in a year and want to pay for something more that a trip to the courthouse?
Whatever your needs, planning now for them by starting a "safety net fund" will save you a lot of aggravation, allow you to sleep better at night, and help you avoid potential financial pitfalls when your luck is down. Not a bad deal, all in all.
Wow! So now you have all this extra cash! What do you do now? No, stay away from the mall. :-) Save it! The easiest way to do this is to arrange it with your bank that a set amount gets taken right out of every check and put into a "safety net fund". This can be a savings account, Certificate of Deposit (CD), or a money market account. The differences between these options are 1) the availability of your money - CD's have terms as little as 3 months, savings accounts are instantly available, and money market accounts generally go through brokers - so you may have to wait a couple of days for your money - and 2) the earnings your money will make - CD's are usually your best option for earnings, but check out what your bank offers. A normal savings account doens't usually offer a great rate of return. Wight the pros and cons of each option and find one that works for you. Both of these options are covered by the government if anything happens to the bank - stocks aren't, and that's why I wouldn't recommend stocks as a good place to put you safety net.
Everyone should have a "safety net fund" set up. What happens if you get laid off? You don't want to spend on credit cards and pay it all back - plus 18%. You don't want to move back with Mom and Dad (and believe me here, they don't want you to move back either!). Putting away now for a rainy day will make all the difference in the world when life throws you a curve.
But - how much will you need? Well, this all depends on your own personal level of comfort and what you plan for the future. Most financial consultants will tell you to squirrel away at least 3 - 6 months worth of living expenses (depending on your comfort level), but the rest is up to you. Do you want a new car in a few years and don't feel like paying all that interest back on a car loan? Do you want to have a really cool 3 month vacation to Cairns, Australia to see the Great Barrier Reef in 2 years? Are you getting married in a year and want to pay for something more that a trip to the courthouse?
Whatever your needs, planning now for them by starting a "safety net fund" will save you a lot of aggravation, allow you to sleep better at night, and help you avoid potential financial pitfalls when your luck is down. Not a bad deal, all in all.
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