As a rule of thumb, it’s important to have a “rainy-day fund” to cover three to six months of living expenses. But with so many financial vehicles competing for your hard-earned money — and a finite amount of cash to put into them — saving enough can be a daunting task.
Putting your funds into a high-yield savings account, such as Money Market Savings, can be a helpful way to grow your emergency savings. You’ll still have easy access to your money, while being able to earn interest, and your account will be insured by the Federal Deposit Insurance Corporation (FDIC) to the legal maximum, meaning that your funds will be protected from market fluctuations.
The most efficient way to build your long-term financial security – think of goals like buying a home, retirement, college for your future children, etc. – is to take the short-term view of paying yourself first. Automatically funding your rainy-day savings before your other expenses will help you adjust daily and monthly spending habits.
Smart ways to do this include:
- Setting up automatic paycheck withholdings (typical for 401(k)s and Employee Stock Purchase Programs)
- Setting up direct deposit from your paycheck to your investment accounts
- Setting up a regular monthly or quarterly transfer from your checking account, such as Bill Pay
- Mentally earmarking any extra funds you’re expecting (a bonus payout, inheritance, the sale of a major asset) to help you reach your financial goals
After paying yourself first, you may find that you don’t notice the difference in income, but your investments and nest egg will be steadily growing all the while. All of which means you’ll be saving for the long run, and reaping the rewards as a result.