Friday, July 28, 2006

Decisions about my Savings Account

Recently, I've discovered that there are even more high-yield savings accounts than I had imagined. However, for me, more important than the exact high-yield account that is used, I feel like these need to be my goals and guidelines with regard to my mid-to-long-term savings:

Use it instead of Credit Cards for unexpected expenses but only when necessary.

Covering 6 months of expenses is unrealistic for most people including myself. I will try 2-3 months as part of a contingency plan in the event of an accident, health problem, or unexpected Job loss. I know people don't think it will happen to them, but I worked with someone who had been laid off. So you should consider what you would do if you lost your job, if your roof caved in, if your car got wrecked. These are not crazy situations and it is important to be realistic about your plans if something like this happened.

I think that cash or some other non-volatile holding is a good protection for at least some of their wealth as an insurance against stock market volatility. How much? Perhaps just enough for my emergency fund (See above).

Somewhere between 50-75% of savings should be in that type of account to ensure that you are making interest on this money. Even just 1000 dollars can make over 5% annually in a high-yield account. Since my history shows that most will be left alone, I'm also considering a CD. However, I like the liquidity of a savings account so that the money can be easily accessed if an emergency or opportunity arises.

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