Increasing Your Liquidity

In these scary financial times, one way to make yourself feel more secure about your fiscal position is to increase your liquidity. Before you let this term intimidate you, you should understand that liquidity isn’t some fancy thing that only rich folks enjoy. Liquidity simply means having your money is a place where you can easily get to it.

All of the money in the world won’t do you any good if you can’t get to it when you need it. Improving your liquidity will allow you to use your money when tough financial times require that you dip into your savings. Making a few simple changes in your financial plans will make your financial position more liquid than ever.

First, using a basic savings account is preferable to investment vehicles like CD’s or stocks in terms of liquidity. Savings accounts will earn a lower rate of interest, but as a savings account holder you can rest safe in the knowledge that you can withdraw your money any time you want. In addition, savings account won’t be subject to the rises and falls of the stock market. You will never lose money in a savings account.

Another way to increase your liquidity is avoiding committing yourself to any mandatory, monthly payments. Sure, you may be able to afford that payment on your new television now, but what happens if something changes? Locking yourself into regular payments each month won’t leave much wiggle room in your budget if you lose your job and face an expected, major expenditure.

Finally, avoid putting your money into investment vehicles that penalize you when you make early withdrawals. If you simply can’t stomach the idea of earning the small return that comes with a savings account, you can invest your money in a reliable mutual fund. (Although, given the current economic climate, reliable may become a relative term.) You should, however, avoid putting money into certificates of deposit or retirement accounts if there is any chance that you might need to use your money in the near future. Stiff penalties for early withdrawal will more than eat up any incremental earnings these types of investments might yield if you take your money out too soon.

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