Initial Investment Strategies Series: Have a Cash Reserve

Our public high schools and colleges offer a bouquet of courses on accounting, finance, and business. But often we find that even graduates from within those fields lack the skills necessary to plan their own finances appropriately. Also, few families have or pass the knowledge that any Certified Financial Planner would impart to each of his or her first-time clients.

This is the first in a long series of Initial Investment Strategies. Apply these concepts and strategies when looking at your financial picture:

The first recommendation is to have a cash savings of at least 3-6 months living expenses. Some planners even recommend a 9 or even 12 month reserve. This protects you and your family in the event of a life changing event: loss of job, tragic accident, etc. Having a reserve eliminates the paycheck to paycheck living and it's accompanying stress. Consider storing these funds in something other than a simple savings account, which may only pay 1-2% interest. ING and Citibank both offer competetive rates, 4.4% and 5.0% respectively, while a more hands-on and shrewd strategy of revolving CD's (Certificates of Deposit) can bring better rates while maintaining access to cash. For example, a 6 month reserve can consist of 6 seperate CD accounts, each set to expire one month after the previous. When the CD matures (expires) you simply do nothing, and the interest will be reinvested for another term, growing your savings.

Check out http://www.bankrate.com/gookeyword/rate/dep_ratehome.asp?params=NY,2&product=14 for a listing of CD rates in your area, or drop by your local bank. In New York, First Horizon Direct is offering 5.27% on 6 months CD's with only a $1000 minimum.