Unfortunately, people often underestimate the extent of their short-term expenses and commitments when determining their investments. It is easy enough for this to happen, as people tend to focus on earning the most out of their savings. Too much money just lingering in a checking account isn’t always the best place to make money, so where’s the value? Why not remain optimistic and just go for higher returns?
By approaching investing like this, one can often become spread financially too thin. This can lead someone to incur unnecessary costs and penalties from having to cash out investment vehicles before they mature. But one simple way to avoid this situation, which many don’t always take seriously, is to make a thorough list of short and long-term financial goals and expenses, and the potential pitfalls that might occur along the way.
A careful and realistic timeframe to evaluate would look at costs and commitments across an 8-month period. Part of this scenario involves eliminating high-interest debt, like that from credit cards. With rising fees and interest rates, credit card debt can become a serious burden. If an emergency occurs or you lose your job, this type of debt is going to take a chunk out of your savings. Remember, given high interest rates, you don’t want to rely on credit cards or a line of credit to cover costs. It’s easy enough to have access to this money but getting out of this type of debt is another story.
When you are figuring out the amount in your emergency fund, take into account all scenarios and expenses. Factor in your daily coffee, car repairs, haircuts, replacing a phone or laptop, if you or your partner lose their job, and car and home loans.
Fortunately, there are a myriad of short-term investments that earn greater returns on your savings than traditional checking accounts. Investing in money market investments or a savings account are some options to consider. High-interest savings accounts are a good option and often offer earnings comparable to government short-term bonds. Many can be accessed at anytime, and have no minimum payments or fees.