How much to put into savings and then investing?

How much should I put into saving? I read that I should have at least 6months of emergency money. I just started having some extra cash, and have like $5k in savings. If I put $2500 in a Fidelity mutual fund, that would only put me with $2500 in savings. Is that smart?

Also to add, I have 2 credit card dept, but around $2000 each and both have no interest till end of 2008. So I am slowly paying it off till end of 2008.

Your should have 3-6 months of living expenses in an emergency account (3 months if you have no dependents but have family who can help you out in an emergency; 6 months if you have dependents). A money markey mutual fund will keep this amount safe and steady.

Then you save 10-15% of your gross (pre-tax) income in a retirement savings account (401k, IRA). A targeted-date mutual fund is ideal for this.

Then, depending on your needs and goals, put a few extra percent in a mutual fund for your short and mid-term goals, like a house or car.

A financial institution like Fidelity or Vanguard is better than a local bank for this sort of investing, because they have lower overhead and offer better rates.

What's your debt ratio? Or better yet, what's your total debt and your gross income. How much do you spend on mortgage, bills, etc.

If something happened tomorrow or today, how long could you survive without a flow of income? Would you immediately be screwed? That makes a difference on what you should do.

It is definitely smart to invest money -- let it grow faster than the low savings-deposit rate, and let it grow faster than inflation.

How much money should be saved and how much invested-- it depends on how much you need for this year's living expenses, and how much you have extra, for placing in the stock market or some mutual fund.

Savings should be allowed to accumulate until they take care of your living expenses for this year, your insurance premiums, your housing, transportation, and the education of your children, if any.

Once you have saved enough for the basic necessities, and enough as well, to take care of the next few years, then the money that you have left over, can be invested. You can invest it long-term so that it (the pile of money) can take care of your needs ten years from now, 20 years from now, ..... 30 years from now. There are ways of letting investments compound over time, growing tremendously.

All that would exact a sacrifice from you. You would not be able to enjoy "spending" money, because you're too busy "saving" it, and "investing" it. But that's the way to achieve your personal goals and to prepare for retirement.

regards,

Sandy G

I think you are a bit confused with regards to mutual funds. You can sell any portion of mutual fund at any time. It may take up to a week to get your money but you would still have access to that $2500.

If I were you, I'd look into first putting all your savings into a online bank that offers a high rate of return on a savings account. You could go with HSBC, eTrade, etc. You can probably get between 3.5 to 4% interest right now which is not too bad.

Just go to www.bankrate.com and compare online savings accounts. Most of the online savings accounts also let you transfer money to and from other checking accounts (such as BofA, Wellsfargo, Wamu, etc.). The transfer time is usually only a few business days. The key is to make sure you anticipate when you might need a little extra cash and give yourself a little buffer.

Once you have saved up enough money in the online savings account, then you can start thinking about putting some money into a mutual fund. The reason I suggest going this route is because you are fairly new to saving and you need to take a slow and build up your confidence. I've seen people jump right into mutual funds and then when it goes down 10% they freak out and never invest again. Good luck! It's a lot easier than you might think.