Short term cash and long term cash
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At the end of the day most people just want their home paid off and enough money to fund their kids’ college.
Some may not want to give their child a free ticket to college. Some just want to (at least) have the money just in case they need to assist them through the college years.
Those are the main long term goals people want to accomplish. Face it, once your home and kids college is taken care of– the rest is quite easy. Plunking money into a 401k plan is a breeze considering you have a stable income. It usually paying off the house and sending the kids to college that becomes more challenging.
You need some emergency cash in place before you get to the fun stuff–paid for home, college savings
Short term money is the old fashion emergency fund. Most keep less than 3 months of expenses in an emergency fund, very few keep 6+ months. Johnathan Clements former Wall St. Journal columnist advocated that he only keep two months savings in cash. The rest of his money was in investments. Others may use the Zero Dollar Emergency Fund
If your job is extremely stable, your target should be 3 months of expenses to keep in cash. If your income is volatile or if you’re the only worker in the household you may want to lean towards 6 months or more
Stable jobs are more recession proof- government jobs, firemen, police men, union jobs etc.
Volatile income can include people that are self employed or in sales careers.
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I discuss savings accounts and other personal finance topics in my new upcoming book
First Generation White Collar due out Fall 2010
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Stay tuned~
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