Buffer Investments To See You Through Lean TimesBuffer investments or emergency money is just that - money you have put away to serve as a buffer during emergencies. How much should you put away as a buffer investment? Ideally you should have between 3 months to 12 months of earnings put away. Even if you earn a regular salary, a minimum buffer of 3 months is in order, to see you through illness, accidents, loss of job or other unforeseen hard times. If you are a professional and see regular ups and downs in your earnings, a buffer of 12 months of earnings is in order. Where should you park this money?I recommend a third in your savings account so that it is readily accessible. Another third should be in a liquid or money-market account preferably linked to your savings account, so that it earns a slightly higher rate of interest. The last third should be in fixed deposits or CDs, which of course earn even more than the liquid investments. How do you start? If you do not have any savings, your first target is to accumulate about a months earnings, or more if you should need a larger buffer, in your savings account. Next the liquid investment and then the fixed deposit or CD. This laddering is extremely important and I cannot emphasize it enough. If you do not have a sufficiently large base, you cannot build a tall edifice. If you decide this is strictly for the birds, you will find out to your regret months or heaven forbid even years later, that you are back to square one, just as I did, all because you neglected these small steps to begin with. The next step is Diversification - click on the link below to visit the diversification page.
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