A Financial Safe Harbor Strategy

Particularly in today’s economy, most American households manage to fall in between the “getting by” and “living comfortably” ranges. However, it’s equally true that many are only a few missed paychecks away from problems.  A major medical episode or lost job is often all it takes for families to be in financial difficulty.

As a general rule, it’s a good idea to have between 6 months and a year’s worth of salary available to draw on in the event of a financial emergency. Given the volatility of the present-day market, one thing is clear – if you have a fully employed household at the moment, now is a good time to begin building the best, most secure financial nest egg you can.

When it comes to parking your extra money, the most important thing to remember is ease of access. Gain the highest interest you can, but do so where you can get your cash quickly, without any type of withdrawal penalty. The safest destination in most cases in the common bank or credit union savings account. Your money is federally-insured with either type of institution, so there’s no risk of losing it. Money Market Accounts and Certificates of Deposits are good options as well.

Bank-supported money markets offer higher interest rates than savings accounts, but generally limit the number times cash can be withdrawn. CDs are purchased for specific periods of time and usually offer even higher rates. You can incur penalties for early withdrawal, but by focusing on 3 month and 6 month durations and staggering the maturity dates, you have an opportunity to balance accessibility with a better return on your investment.

Rome wasn’t built in a day and neither is a rock-solid financial status.  But if your current circumstances allow, begin the process of setting aside a small amount with each paycheck.  It can be an effective way to giving your household the security it may need some day.