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Why Saving Money in a Short Term Fund is So Important

Why Saving Money in a Short Term Fund is So Important

With low consumer confidence and continued market volatility, the need for a savings fund seems more pertinent now than it has previously. It almost seems that people’s long-term investment strategies and plans had shied away from creating a fund to take care of short-term costs and commitments—in case something happened that interrupted their main source of income. The ability and need to cover everyday costs for several months to a year has become more than evident in this post-recession environment.

But for many, the idea of a savings fund is still far removed from their everyday lives. Most don’t plan for hiccups or detours in their lives. People invest, for the most part, to maximize their savings, and this usually involves committing themselves to long-term investments that make their savings inaccessible without incurring some potential penalties or losses.

It seems that for many, finding a balance between saving for the long-term and covering short-term expenses is incongruent. But what expenses and commitments then, should you be saving for and how should you do this? For many, the general rule of thumb is to save enough to cover costs for 8-12 months.

The most obvious reason to create a savings fund is to protect against job loss. With or without a job, mortgage or rent is still due, car payments and bills still keep coming, and if you have children, there will be expenses that you never planned for. Before you can even safeguard yourself against these issues, high-interest debt, especially from credit cards, should be eliminated.

There are ways, fortunately, to grow and manage your savings that provide steady returns while it is parked. One simple and easy option is to keep your savings in a high-interest savings account. These provide competitive interest rates, with some as competitive as investing in the money market—but more accessible and without minimum deposits.