Emergency savings: Your first investment.

Posted by Matt
If you've been able to balance your budget and eliminate your debt, congratulations! Those are really the main things you need to do to become financially healthy. Now you get to work on fun things like where to put all the extra money that is piling up. Hopefully you already followed my advice to start a small emergency fund, because the next step is to build on that. You should have several months worth of cash in an easy to access account, and my recommendation is to use an Internet Savings Account. These provide a nice mix of low risk and accessibility while still earning a decent return (my HSBC account pays 5.05%APR).

You really want to establish respect for the savings account as an untouchable reserve, so don't get too aggressive in moving dollars from checking to savings. You don't want to be moving money back out of savings when checking gets too low. Once the money is saved, don't touch it! By the way, it feels really nice to know that money is there as a financial lifeboat if I ever get into trouble. It eliminated a large amount of stress for me.

I'm fairly conservative financially and like to keep things simple, so I would be pretty happy if I could have my entire "investment portfolio" in just one place (like a savings account). But there are definite advantages to other types of investments that I just can't ignore. The first example will be covered in my next post about retirement accounts.