Free advise on Finance, how to make easy money, monetize your blog, search engine optimization

Enter your email address to receive top money saving tips :

Friday, November 2, 2007

Goosing Emergency Fund Earnings

I got a question about emergency funds I’d like to address:

“With rates on savings accounts like Emigrant and ING dropping, where’s a good place to put my emergency fund? I hate seeing my money sit around doing nothing. Thanks.”

My answer to this is simple. An emergency fund is not for making money. Achieving the optimal return on your money is NOT your goal. Having a stack of bills to use in an emergency is.

Putting your emergency fund in a savings account or equivalent achieves the three things an emergency fund is supposed to achieve:

It keeps your money readily available
It keeps the value of your money constant over time
It keeps your money safe
Your emergency fund is not supposed to do anything else, including add to your net worth. Looking for another quarter point in interest should not be your goal. Having the money you need, when you need it, should. Do not make the mistake of losing sight of the objective of an emergency fund.

My first-line emergency fund sits in a money market earning barely over inflation. And that’s just where it will stay.

No comments:

Finance blogs Page Rank TopOfBlogs