Family & Friends

Ask Jean Thursday

Posted by Jean

Starting this week, every Thursday I’ll be dedicating my blog post for the day to answering one of your financial questions. This week’s comes from Patsey in Woodland North Carolina. She writes:

I have a 22 year-old daughter who begins work as a nurse in July. I have recommended the asset allocation (early career in your book The Difference) after she saves up 8 months in expenses in cash or money market fund. Do you have a better recommendation or did I miss the mark?

Answer: In a perfect world, we would all have 8 months in living expenses in the bank. The reality is however, that putting that much in the bank, especially when you’re starting out, can be a daunting task.

Yesterday Karen Blumenthal stopped by my radio show to discuss her new book “The Wall Street Journal Guide to Starting Your Financial Life.” Starting small, Blumenthal says, is a key thing for workforce newbies to remember. “The first paycheck you might have immediate living needs…you don’t want to run up debt. You need to commit some of each paycheck to build that fund. Start with even $25 and then increase it. In every paycheck you should aim for as much as 10%. If you can’t do that right off the bat start with what you can do,” said Blumenthal.

But where should that money go once you’ve set it aside? Your daughter is going to want something where she can easily move her money around and access it in case of an emergency. To meet both of these needs, online savings accounts are a good place to stash your cash. Places like DollarSavingsDirect, HSBC Direct, and ING Direct offer these types of accounts. “With these it’s very easy to move money around…and the interest rates are a lot better than you’ll get with a money market account or a regular savings account. There are no catches, for the most part, and fairly low or no minimum balances,” said Blumenthal. An added bonus: These accounts are FDIC insured.