Financial Planning: Turning Your Rainy Day Fund Into An Investment

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Life insurance and home ownership are part of a long-range investment plan for most Americans. But, assuming you've been putting a consistent amount of money away each month for an emergency, what -- if anything -- should you do with it?

Suppose that your rainy day fund has now been accumulated and that, in addition, a reasonable amount of other funds are available. Should those funds simply be allowed to remain in comparatively safe surroundings and be compounded at a low rate of interest, or are there other investments in which they may be employed to a much greater advantage?

For many persons, the placing of funds where they earn interest constitutes investment. They are quite willing to do nothing more than to tuck a passbook in a bureau drawer or to place a few bonds and stock certificates in a safe-deposit box, and then forget about them. They make no attempt to formulate an over-all financial policy, which will be a general guide in the administration of their funds.

This undiscriminating procedure is to be regretted, because it cannot lead to maximum financial benefit. For example, the man who makes no attempt to see the relationship of a life-insurance program to the total investment policy may, by this oversight, find himself tied to an insurance program, which is not suited to his needs. Actually, investment in life insurance should be recognized as only a part of the broader aspects of a general financial plan.

Life insurance is, in itself, a highly desirable investment, particularly for a young man who is just launching his career and wants protection plus the added advantage of building up an estate, but some attention should be paid to other forms of investment and their interrelationship. Other factors to be taken into consideration are the current rate of return and the final objective to be attained, which may be current income, the creation of an estate, and even some gradual appreciation of the principal itself.

The formulation of an over-all financial plan should apply to all investments, so that any given investment may be carefully explored and its merits weighed in relationship to the whole. The problem is a knotty one, because there are many factors, which enter into it. However, when each of these factors is carefully defined and a statement of objectives carefully worked out, it is possible to arrive at a satisfactory solution. Of course, the decisions to be made are not to be considered lightly, because in their details they may possibly be the most important to be made by any investor during his entire lifetime. It is true that such a plan may be subject to modification as time passes, and this is as it should be, since circumstances alter cases; but the face-to-face realization of the importance of investment for a lifetime has a rather sobering effect, inasmuch as it causes one to come to grips with matters which are of paramount importance to him throughout his entire productive years and which will have an indirect effect upon the lives of all members of his immediate family.

Rainy-day funds are indispensible to any family, but they don't just have to sit moldering in the bank or in bonds with low rates of return. There are options for the savvy investor who wants his savings to accrue well over time and become a real safety net for his family in the event of an emergency.

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