Building a Healthy Financial Foundation
Updated: Jun 19, 2021
When you read about money matters, you will sometimes see the phrase, “getting your financial house in order.” What exactly does that mean?
When your financial “house is in order,” it means it is built on a solid foundation.
It means that you have six fundamental “pillars” in place that are either crucial for sustaining your financial well-being or creating wealth.
#1: A savings account.
This is your Fort Knox: the place where you store and build the cash you may someday use for your biggest purchases. Savings accounts pay a modest interest rate. It would help if you still considered having a savings account, even in today’s low-interest-rate environment. Banks and credit unions often limit the number and amount of withdrawals you can make from savings accounts per month.
#2: A checking account.
This is your go-to account for everyday expenses, whether you pay your bills digitally or the old-fashioned way. Checking accounts pay a modest interest rate. Some accounts may have minimum balance requirements, so it's best to read the new account information closely. Also, opening a checking account may lead to opening a credit card account at the same financial institution.
#3: An emergency fund.
This bank account helps you deal with the unexpected. You know that label you see on fire extinguisher boxes – “break glass in case of emergency?” Only in a financial emergency should you “break into” this account. What is a financial emergency? Everyone’s definition varies, but examples include hospital bills, major car repairs, and unemployment.