Myth 7: Keep short-term savings uninvested

You may have heard about the concept of an emergency fund. It’s generally recommended that people have 3 to 6 months worth of living expenses set aside for emergencies - say, if you’re laid off or you get injured on the job and your income suddenly drops.

However, locking up your savings in short-term vehicles such as money market funds "just in case" has a high opportunity cost. In other words, because your money is tied up it misses out on the opportunity to experience the growth it might have had in another type of investment. And unless you have your money in an investment with a guaranteed rate of return, when you need it, your investment might not be worth its original value.

Myth 1 Myth 2 Myth 3 Myth 4 Myth 5 Myth 6 Myth 7 Myth 8 Myth 9

Here’s an alternative: open a line of credit that provides easy access to emergency funds when, and if, you need them. With a line of credit, you only pay interest if you withdraw the money. Meanwhile, all your savings can be allocated appropriately so you don’t miss out on market performance