|
An important short-term financial goals is an emergency fund. It's there to cover the unexpected and expensive item, such as the new heating system when the old one dies during the winter.
Keep it separate, but not in CDs
The emergency fund must be kept separate from your regular checking account. The best place for the fund is in a bank (not mutual fund) money-market account because these accounts earn higher interest rates and you can usually withdraw money without penalty on short notice.
A certificate of deposit (CD) is not a good place for emergency money because there is a penalty to withdraw funds quickly. CDs work better if you want to set aside a lump sum for at least a year. For example, stash your down-payment for a house in an 18-month CD if you are planning on buying a house in two years.
How Much Do You Need?
For military personnel, two to four months' worth of expenses
is a good starting point for an emergency fund. To calculate
how much you should contribute to your emergency fund, track
your expenses for six months (using the cash
flow statement) and divide by six for your monthly average.
| 
Play
video