You should earmark a certain percentage of your salary each month to a savings fund. To avoid the temptation to spend instead of save, make sure the money is deducted automatically from your paycheck.
Use this account for short-term savings that ultimately will become an emergency fund. The "emergency" fund eventually may help you buy a new car or even a home.
Keep this money into a short-term bond fund or a money market fund, which offer greater liquidity than a bank CD and a higher yield than a bank savings account. Don’t invest this emergency money in stocks, which should have a minimum holding period of five years. Anything you might need sooner, keep in a lower-risk, yield-bearing account.
