There is nothing complicated about money; you either spend it or save it. Over the course of a lifetime it mostly gets spent, so saving is just money to be set aside for spending at some point in the future. This is a really important point, because in setting it aside there are two key considerations. The first is how to get the best rate of return on the money while it is being held aside, and the second is how to make sure it is available when it is required for spending. The latter consideration is what is called liquidity – that is, the ease with which an investment can be turned into cash for spending.

The shorter the investment time frame, the more liquid an investment needs to be. Liquidity, rate of return and investment risk can work against each other. Generally speaking, if you are looking for a high level of liquidity with a low level of risk, you will receive a low level of return. In the very short term, liquidity takes precedence over return.

Investment time frame is a key driver of investment strategy. The starting point for any strategy is to work out how much money you need and when. For the very short term, savings accounts are the best option. If you have a mortgage, savings can be kept in a line of credit or offset account to reduce the amount of mortgage interest you pay. If you don’t have a mortgage, use an online savings account for your emergency funds or money you plan to spend in the next year. If you are reliant on money from investments to top up your income, have a series of term deposits maturing six months apart so there is always money available when you need it.