Not under your pillow

Do you have some money to spare? Are you spending less than you earn?

If so, good work! 👊🏻

Once you’re saving some money, though, you might wonder where to keep it.

First: do you have an emergency fund? By that I mean: do you have a year’s worth of your living expenses readily available to spend?

It doesn’t have to be a year’s worth of your ideal expenses. But it’s prudent to have an emergency fund that can cover a year’s worth of your expenses if you don’t buy a new phone, don’t go on expensive trips, and so on.

If not, build that emergency fund first. You never know when you’ll lose your job or a big client, or when you’ll need to pay out of pocket for unexpected medical care.

After you build that emergency fund, what can you do?

To build wealth for the long run, buy stock index funds. If you’re a bit older, mix in some bond index funds too.

That’s it! Build an emergency fund, then buy (and hold) index funds.

There are many details to the “how”, of course. But if you are just starting to save some money and you’re trying to figure out what to do with it, these are the two basic steps.

Yours,

— Peter

P.S. If you live in the United States, I recommend buying index funds with Vanguard. And for my Dutch friends: use Meesman.