Advice on replacing my savings account
"Liquid cash (emergency, rainy day fund) should be safe from a loss in value.  Mutual funds don't give you this, especially stock funds.  You can find ""high yield"" savings accounts that are now at around .8% to .9% APY which is much better than .05% and will hopefully go up.  Barclays US and American Express are two big banks that normally have the highest rates. Most/all Savings and Money Market accounts should be FDIC insured.  Mutual funds are not, though the investment IRA, etc. holding them may be."
"Welcome to Money.SE. I will say upfront, Personal Finance is just that, personal, and you are likely to get multiple, perhaps conflicting, answers. Are you sure the PMI will drop off after 2 years? The rules are specific, and for PMI, when prepayments put you at that 78/80% LTV, your bank can require an appraisal, not automatically drop it. Talk to the banks, get confirmation, and depending what they say, keep hacking away at the mortgage.  After this, I suggest jumping on Roth IRAs. You are in the 15% bracket, and the Roth will let you deposit $5500 for each you and your wife. A great way to kickstart a higher level of retirement savings.  After this, I'm not comfortable with the emergency savings level. If you lose your job tomorrow (Funny story, my wife and I lost our's on the same day 3 years ago) and don't have enough savings (Our retirement accounts were good to just retire that day) you can easily run out of money and be late on the mortgage. It's great to prepay the mortgage to get rid of that PMI, but once there, I'd do the Roth and then focus on savings. 6 months expenses minimum.  We have a great Q&A here titled Oversimplify it for me: the correct order of investing in which I go in to more detail, as do 4 other members.  I am not getting on the ""investments will return more than your mortgage cost"" soapbox. A well-funded emergency fund is a very conservative bit of advice. With no matched 401(k), I suggest a balance of the Roth savings and prepayments.  From another great post, Ideal net worth by age X? Need comparison references you should have nearly 1 year's salary (90K) saved toward retirement.  Any question on my advice, add a comment and I will edit in more details." After some thought, I follow Dave Ramsey's advice because it's simple and I can do the math in my head - no online calculator needed. :) You need Life Insurance if someone depends on your income.   You can replace your income with a single lump sum of 8-10 times your current income where those who need your income, can get roughly your salary each year from the life insurance proceeds. Option three is our preferred method, and we never argue about money. First we did a budget to work out ALL monthly joint out-goings (mortgage, bills, grocery etc). Then we each agreed who would pay what into the joint or household account - at the moment, I earn more than my wife, so I pay more, but we sit down every three or four months, to see if it needs adjusting. This way, we each keep our own individual accounts private, but pay what is necessary into the household account. We also set up a joint savings account; often at the end of the month, we'll have a little extra left in the household acount, and we siphon that off into joint savings to cover future unexpected costs - looks like our tumble dryer is on its last spin cycle at the moment, for example, and the joint savings account will be able to cover the cost of replacement. it all takes a bit of administration - but, as I say, we've never had a cross word about money, so the system seems to work. My beef with day (and to ape Yishai's answer a little) is that his good advice is no different than anybody's good advice.  The seven steps are on the home page, Clark Howard, Suze Orman and probably quite a few others all chat about spend less, save more, shop wisely and live within your means. Anything specific is just motivation, and it sort of irks me that Dave Ramsey charges $100+ buck to go to a seminar about how to save money.  A $30 book to read anecdotes and examples of how to follow the seven steps.  (Probably, I won't buy his books) I have no problem with somebody making money, but I doubt that Dave is just barely breaking even.  I was stand corrected if he is, but I just don't suspect he is. Clark Howard recommends that people go to the library and check out his book; he is a lot closer to practicing what he is preaching. I feel the need to separate my freelance accounts from my personal accounts. Yes, you should. Should I start another savings account or a current account? Do you need the money for daily spending? Do you need to re-invest in your business? Use a current account. If you don't need the money for business expenses, put it away in your savings account or even consider term deposits. Don't rule out a hybrid approach either (some in savings account, some in current account). What criteria should I keep in mind while choosing a bank? (I thought of SBI since it has a lot of branches and ATMs). If you are involved in online banking and that is sufficient for most of your needs, bank and ATM locations shouldn't matter all that much. If you are saving a good chunk of money, you want to at least have that keep up with inflation. Research bank term deposit interest rates. The tend to be higher than just having your money sit in a savings account. Again, it depends on how and when you expect to need the money. What do I keep in mind while paying myself? Paying yourself could have tax implications. This depends on how are set up to freelance. Are you a business entity or are you an individual? You should look in to the following in India: The other thing to consider is rewarding yourself for the good work done. Pay yourself a reasonable amount. If you decide to expand and hire people going forward, you will have a better sense of business expenses involved when paying salaries. Tips on managing money in the business account. This is a very generic question. I can only provide a generic response. Know how much you are earning and how much your are putting back in to the business. Be reasonable in how much you pay yourself and do the proper research and paperwork from a taxation point of view. Yes, and there are several ways, the safest is a high-yield savings account which will return about 1% yearly, so $35 per month. That's not extremely much, but better than nothing (you probably get almost zero interest on a regular checking account). You seem to have a grasp of the basic principles involved, but your estimation of the risk you are taking seems a bit low. Your non-investment reserves are unlikely to cover your expenses for more than a month, so the chance that you would need to sell investments to cover additional expenses is high. You mention that I am flexible with the 'cash on hand' amount. For instance, for about three months I put a very tight spending/investing freeze on my life because I knew I'd be leaving jobs and moving (I already had the other job lined up). Those savings presumably went toward moving expenses, as your usual savings were insufficient. In the event that you are laid off suddenly, you might find yourself in the same position again, with added unplanned expenses like fees for breaking a lease. Your current plan involves selling investments to cover the gap. Based on your age you have probably only invested in a predominantly positive market, so the chance that you might need to sell investments for cash seems like a reasonable trade-off for the added potential gains. Your perception might change if the markets go south and you are forced to sell into a down market, possibly at a significant loss. You also don't indicate if your investments are currently sufficient to cover an extended period of unemployment. You are taking on a lot of risk under your current plan. Essentially you are trading possible investment gains for flexibility and time. By making small changes like saving at least enough to move as you did previously, you can give yourself time to react to job loss or other unexpected financial need. Rather than give the traditional emergency funds advice, I suggest you look at the broader picture. The total amount of savings/risk is up to you, but you should consider your current savings as insufficient to rely on as a safety net. The absolute best advice I ever received was this:  You will need three categories of savings in your life: 1) Retirement Savings  This is money you put away (in 401-Ks and IRAs) for the time in your life when you can no longer earn enough income to support yourself. You do not borrow against it nor do you withdraw from it in emergencies or to buy a house.  2) Catestrophic savings  This is money you put back in case of serious events. Events like: prolonged job loss, hospitalization, extended illness, loss of home, severe and significant loss of transportation, very large aplliance loss or damage. You do not take trips to the Bahamas or buy diamond rings with this money.  3) Urgent, relatively small,  need savings. This is the savings you can use from time to time. Use it for bills that arise unexpectedly, unforseen shortfalls in your budget, needed repairs such as car repairs and small appliance repairs, surprising fines, fees, and bills.  Put 10% of your income into each category of savings. 10% intro retirement savings, another, separate, 10% intro Catestrophic savings, and yet another 10% intro urgent, small need, savings.  So, as you can see, already 30% of your income is already spoken for. Divide up the remaining 70% intro fixed (I recommend 50% toward fixed expenses) and variable expenses. Fixed includes those things that you pay once every month such as housing, utilities, car payment, debt repayment, etc. Variable includes discretionary things like eating out, gifts, and  splurges.  Most importantly, partner with someone who is your opposite. If you are a saver at heart partner with a spender. If you are a spender partner with a saver.  There are three rules to live by regarding the budget: A) no one spends any money unless it is in the budget B) the budget only includes those things to which both the saver and the spender agree C) the budget can, and will, be modified as the pay period unfolds.  A budget is a plan not a means to beat the other person up. Plans change as new information arises. A budget must be flexible. The urgent use savings will help to make  the budget flexible.  Edit due to comments: @enderland Perhaps you do not have children living with you. I am a saver, my wife is a spender. When it came time to do the budget I would forget things like the birthdays of my children, school fees due next pay period, shopping for Christmas gifts, needed new clothes and shoes for the children, broken small appliances that needed to be fixed or replaced, special (non reoccurring) house maintenence (like steam cleaning the carpet), gifts to relatives and friends, exceptional assistance to relatives, etc.  As my wife was the spender she would remind me of these things. Perhaps  you do not have these events in your life. I am glad to have these events in my life as that means that I have people in my life that I care about.  What good is a fat savings account if I have no loved ones that benefit from it?