How to Build Wealth – Stash your Cash, Part 2
This is the not so sexy day of “How to Build Wealth,” but so very necessary. Day 3 is my fav. Humor yourself with a little financial know-how and you’ll be boarding the first class flight to Bora-Bora in no time.
Emergency Funds: *REMEMBER* This is money you stash each and every month so that you can handle the occasional financial jolt – replacing the roof on your house, bail money in Brazil, unexpected medical bills – you need to have ready access. A decent money market account is acceptable. It needs to be liquid. At the end of each year I like to sweep mine into an investment account, but that is just in theory. Every year something seems to come up. How to build wealth? Be prepared….
Vacation Funds: If you hope to take multiple vacations throughout the year, you’ll want fairly ready access to these funds as well. Many of my clients elect to keep these funds in the same account as the Emergency Funds to keep it simple – fewer financial institutions and accounts to consider. Just keep in mind that you should only spend vacation funds on vacations . . . don’t dip into the emergency funds for your travel. But do consider giving up vacation funds if an emergency happens. How to Build Wealth? Take care of yourself….
If you prefer to take one massive vacation each year, the amount you use can fluxuate with what is available (more like road trip than spa trip) AND you know when you will need to money for it, feel free to stash the money in any <12 month liquidity investment vehicle. For most of us, even the MBAs, stick with the money market it will save you a lot of potential headaches. But if you KNOW you won’t take more than one vacation, get a few extra bucks but choosing a 6-12 month CD. Remember this locks up your cash for a bit so be prepared to wait.
NOW$: This account is practically drained monthly. Find a free checking account that offers a free debit card (affiliated with Visa/MasterCard) without a daily balance requirement. Make sure they won’t let you accidentally overdraft with your debit card…. Now train yourself to ONLY use your debit card with this account. DO NOT use your credit cards for your entertainment purposes. Those shoes…. Debit baby, debit. That guitar…. debit baby, debit. How to Build Wealth? Don’t forget the chocolate cake….