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Thread: Money - Short term saving

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    Default Money - Short term saving

    So I'm 25, have a wife and a 3 yr old daughter, and I've spent some time making myself reasonably happy with my knowledge of retirement savings options as well as educational savings options for my daughters future. The two issues seem to be very similar (both long term oriented for me, various IRA options, tax deferred or exempt goals, determining the level of diversification for security and risk for growth potential) with only a limited amount of different factors and options that I believe I've got at least a handle on.

    Short term savings however seem to be an altogether different question. Government bills/notes, Money Market Deposits/Funds, various bond options, CDs, I shutter to think of how long I could spend reading computer screens worth of descriptions, Pros/Cons, opinions and options. I've read some general guides as to how to calculate what short-term savings needs and I've got a list of the general pro's and con's of what appear to be most of the options but I'm not close to being secure in my understanding of most of these, nor could I make a decision right now as to where to go with how much.

    I know that some people see "financial" questions as more personal than even "bedroom issues" at times but there appear to be a good number of ... lets just say "out of your 20s" folks here. Does anyone have any experience with short term savings, understanding, or preferences they'd be willing to share?

  2. #2

    Default Re: Money - Short term saving

    I'm only 18 but I have taken a lot of business classes and am familar with savings and investing.

    First in formost, I would advice to hire a financial advisor. They watch the market daily and they can help you a lot.

    Secondly, don't put all your money in one place. Every teacher i've had and every speaker i've heard has said this. Don't put all your money in a CD, or in bonds, or money markets, etc. Spread it out.

    So again just have a financial advisor or planner and be sure that you have your money spread out.

  3. #3
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    Default Re: Money - Short term saving

    Quote Originally Posted by rommie View Post
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    First in formost, I would advice to hire a financial advisor. They watch the market daily and they can help you a lot.
    Anybody that I can afford wouldn't be worth the money.

    Seriously, financial consultants don't make that much. I'm not sure I'd trust my money to a guy who makes little enough for me to be able to afford him.

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    Default Re: Money - Short term saving

    Fool-

    How much do you usually keep in short term savings? How long do you keep it there?

  5. #5

    Default Re: Money - Short term saving

    We keep just enough in our checking account to cover monthly bills (<3K or so at all times). Then we have an "emergency fund" money markey account that could be tapped into for unexpected big expenses. You can write checks from the account so the money is available in days. I draws interest but isn't great so we don't keep much in there either. I think advisors say it should be 3 months salary and we are well short of that, maybe half. I've always preferred money markets over CDs since the money, if needed for emergencies, is readily available. The rate isn't much different, if you shop around.

    Then we have mutual fund investments (4 or 5 with various goals but generally growth-oriented) which earn way higher return but the money would not be as quickly available but it could serve as an emergency fund in case of job loss/ catastrophe. They outperform CDs on average but of course are market-dependent.

    Then we have various retirement and college savings funds.

    I'm not sure my plan is ideal, but it seems OK so far.

    We need to up our college fund contributions by a lot. I have 3 kids.
    The poster "pacertom" since this forum began (and before!). I changed my name here to "Slick Pinkham" in honor of the imaginary player That Bobby "Slick" Leonard picked late in the 1971 ABA draft (true story!)

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    Default Re: Money - Short term saving

    Rommie - I agree that diversifying is always a smart plan but I would also characterize myself as Anthem characterized himself, either I'd spend all the savings paying the guy's fee or he'd be too inexpensive to trust. Plus, some of the value of doing it myself is learning about all of this so while it might cost me some lost gains, I'd rather not just hand over my cash for someone else to deal with.

    Anthem-
    I don't want to talk in specific dollar amounts as I'm not trying to get people to disclose their personal financial situations, just share some thoughts on various short term savings vehicles.

    The short term saving I'm talking about is pretty much the equivalent of 3 months worth of my and my wife's salaries in case one of us is unexpectedly let go or something + down payments or the full amount of any big ticket purchases we expect to buy in the near (2-3 years) future.

    Some of it I don't expect to use (the emergency 3 month salary part) so I expect to keep it long term but it has to be accessible either at any time or at least reasonably quickly.

    The big ticket purchases side of things is another story. Right now, the only thing we are planning to do that could be considered a "large purchase" is siding our house and I'm doing the labor on that (I've got a good deal of experience siding and 3 brothers) so its not all that big a price anyway. But in general I would imagine it being anywhere from a 6-24 month period before I needed access to the money.

    Hopefully I'll find some time this weekend to look through some specific options, throw them out here and see if anyone has any thoughts on them. Right now the only thing I've had time to do is realize that only 1/3 of the 3 month emergency fund needs to be accessible at any given time with the other 2/3s accessible the following months, so if I do go the route of something that locks it away for a set period of time, a rotational maturity cycle would probably be the best % growth while still keeping it accessible.

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    Default Re: Money - Short term saving

    Quote Originally Posted by Fool View Post
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    Anthem-
    I don't want to talk in specific dollar amounts as I'm not trying to get people to disclose their personal financial situations, just share some thoughts on various short term savings vehicles.
    That's reasonable. I was only asking because I wondered how much of a return you're going to get. Spending 3 days shopping around isn't likely to be helpful if it's only going to net you an extra $10 per year.

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    Default Re: Money - Short term saving

    Quote Originally Posted by pacertom View Post
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    I've always preferred money markets over CDs since the money, if needed for emergencies, is readily available. The rate isn't much different, if you shop around.
    Have you ever had to dip into your money market account? I understand the negative about CD's being less accessible, have you found the accessibility of the money market account any sort of negative (like since its more accessible you find yourself using it for things that aren't exactly "emergencies")?

    What about saving up for expected large expenses? Right now we just throw it into a new savings account but that's really just been laziness. I'd like to find sort of a routine I'm comfortable with for saving up for larger non-essential things.

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    Default Re: Money - Short term saving

    Quote Originally Posted by Fool View Post
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    Have you ever had to dip into your money market account? I understand the negative about CD's being less accessible, have you found the accessibility of the money market account any sort of negative (like since its more accessible you find yourself using it for things that aren't exactly "emergencies")?
    I have a money market fund that's in a bank 50 miles away. I told them I don't want checks with it so I have to physically drive there to make a withdrawal. It's an emergency fund though I also use it for large planned expenses such as putting a new roof on the house.

    My rules for it are simple - I never let the balance fall below 2 months' pay and when it gets up around 4 months' pay I move some of it somewhere else (or splurge on something). Of course in a true emergency, which I haven't had yet, I might have to draw it down further.

    I started this with a simple savings account at the same bank with no ATM card. Once it got big enough after a couple of years I went to MM. Direct Deposit, obviously.
    The poster formerly known as Rimfire

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    Quote Originally Posted by Fool View Post
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    Have you ever had to dip into your money market account? .

    So far we've been good and only used it to replace the roof. We got a leak on a 15 year old roof that we were planning to replace in 5 years but had to act immediately.

    We save for everything else. My wife wants to remodel the kitchen and I want to buy a boat, everybody has a dream vacation, but those things are definitely NOT emergencies. They get done when the money market funds are large enough that we can spend on something like that and we still have an adequate emergency fund left over.
    The poster "pacertom" since this forum began (and before!). I changed my name here to "Slick Pinkham" in honor of the imaginary player That Bobby "Slick" Leonard picked late in the 1971 ABA draft (true story!)

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    Default Re: Money - Short term saving

    DP, is it a fund or an account?

    Introducing a physical impediment is a very good idea.

    No one uses any kind of bonds or notes?

    (Thank you all for your responses btw)

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    Default Re: Money - Short term saving

    Quote Originally Posted by Fool View Post
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    DP, is it a fund or an account?

    Introducing a physical impediment is a very good idea.

    No one uses any kind of bonds or notes?

    (Thank you all for your responses btw)
    Sorry - it is an account and I can withdraw up to 5X/mo with no penalty - but the only way I can do that is by driving to the bank.

    Shouldn't say "only" in this day and age but I haven't explored wire or on-line transfers.

    The way this actually started is I worked in that town & had accounts in that bank and a car loan through it. When I moved I also got a raise and applied the amount of the raise to the savings acc't (closed the others).

    The kicker was the auto loan - I paid that through payroll deduction (not account withdrawal - I can't remember why I set it up that way but it worked out). The month after it was paid off I looked for my DD locally to go up by $400. It didn't so I called them and asked what happened since I'd received the title & everything. They said they automatically took out the same amount & deposited it in my savings. Initially I was PO'd but after thinking about it for a bit I decided I hadn't missed any meals paying off the car so why not? The balance skyrocketed and about a year later I closed the savings and opened the MM.
    The poster formerly known as Rimfire

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    Quote Originally Posted by DisplacedKnick View Post
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    My rules for it are simple - I never let the balance fall below 2 months' pay and when it gets up around 4 months' pay I move some of it somewhere else (or splurge on something). Of course in a true emergency, which I haven't had yet, I might have to draw it down further.
    My old boss had a system where he tried to add a month of savings for every year he worked. He did that until he had a year's salary in the bank... then he always went into work with the thought "I could walk out today and not need a job for another year." He never did, but it was precisely because he could. That 12-month savings kept him happy and productive.

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    Default Re: Money - Short term saving

    I am actually an Assistant Branch Manager of a bank on the southside of Indy in the Wanamaker area. I deal mainly with CD's, Money Markets, Checking/Savings accounts, and loans. We are in a new branch and have a TON of rate promos running right now (especially on CDs and loans.) Send me a PM if you or anyone would like to talk specifics.

    -Justin

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    Default Re: Money - Short term saving

    Quote Originally Posted by rommie View Post
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    First in formost, I would advice to hire a financial advisor. They watch the market daily and they can help you a lot.
    Not sure this is good advice. A financial advisor is a broker. As a general rule of thumb, the key for success as a financial advisor is not their ability to provide financial advise, its their ability to get you to pay them for services or financial transactions that you may or may not need.

    And for whatever money they make, they don't prove to be very good at "buy low, sell high". They're salespeople.

    A much more affordable, and equally effective way for individual investors is no-load mutual funds. You're paying a money manager for diversification and to pick the investments (or even smarter, you are investing in a passive index fund: making the same, or slightly higher return than an actively-managed fund while paying a much lower management fee) on either a tax-favorable or taxable basis.

    For short term savings, there are money market mutual funds that allow some flexibility for withdrawals and might have a higher yield than CDs or traditional money-market accounts. Again, you're hiring a money manager to invest/ diversify for you (and that's a lot cheaper and more effective than a financial advisor/ broker), and you'll find accounts that invest in commercial paper (generally very safe), US T-bills (almost no default risk) and the like. Most importantly, you will find those are frequently designed for after-tax accounts, so there's much less "churn" of investments (they'll buy a 45-day commerical paper at a discount and hold it to maturity) so you don't get socked with a tax burden for realized gains like you would if you held an equity mutual fund outside of tax-deferred account.

    Having said all that, I'm not exactly a role-model for short term savings...
    Why do the things that we treasure most, slip away in time
    Till to the music we grow deaf, to God's beauty blind
    Why do the things that connect us slowly pull us apart?
    Till we fall away in our own darkness, a stranger to our own hearts
    And life itself, rushing over me
    Life itself, the wind in black elms,
    Life itself in your heart and in your eyes, I can't make it without you


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    Default Re: Money - Short term saving

    A few points. I make a living from my investments so I do know a little bit of what I'm talking about.

    1. If I had continued to listen to my professors and financial advisors and do what they said, I wouldn't be broke, but I also wouldn't be retired early. Academia is fine for the 3Rs, but it definitely sucks for investing. If high school teachers knew anything about investing, they wouldn't be high school teachers. That goes for the college level as well. That also goes for Schwab and anybody else who makes a living selling stuff to someone else. EDIT: Oh Gawd, now I'll have chuck scwab suing me. They do fine at what they do, they just don't do fine for ME. Disclaimer: I have a scwab acct and I ignore them at all times and do my own thing.

    2. I've learned 10x as much in the last 5 years as I learned in the previous 50 about investing. It's never too soon to start. Start now, YOU decide what's best for you. It will take some time and you'll make some mistakes, but not nearly as many as the people you might hire to make decisions for you. Make your own mistakes. They're a lot easier to avoid and to fix. Oh, and ignore the media. By the time the media figures out there's a story, it's too late and the smart money is out and doing something else.

    3. I have seen a few good ideas so far in this thread (most of it short term savings and emergency fund advice) and a lot of bad advice from people who just don't know any better. Sorry about that.

    4. I learned too late in life that many "tried and true" investing maxims were crapola. I could have retired a lot earlier. For example, diversification, as practiced by most people, is counterproductive. Do your own research and you'll find out even more nonsense.

    Now, on to short term savings --
    I have neither a checking nor savings account. Don't need 'em and they don't pay crap. The wife and I have a joint checking for our monthly expenses. We keep it pared down. We both contribute to this account monthly. If we have excess, we buy a CD.
    I have a MM acct to deal with my personal expenses and to roll excess cash into before I do something with it. It's the clearing house for my finances. It's paying 5.25 or 5.35% right now, let's me write 5 checks a month (one of which goes to the joint acct), and no bank is going to beat it. In fact, most banks don't offer CDs with that rate. At the same location, I also have several CDs (paying > 5.35%) with varying maturity dates as emergency backup and as pure investment, i.e. instead of anything else like stocks or bonds or underwater palladium mines or whatever. I also have some foreign CDs that bring in a yield, plus or minus the change in the dollar's valuation, but that's a higher level playing field.

    Yes, I have bonds, but you're interested in short term savings, so they don't much qualify unless you're looking at the shorter terms. Right now the MM is just as good if not better than the bond yields and it's more liquid. And you avoid market risk by staying away from bonds. I get the feeling you're looking for something sort of on the guaranteed side. Since MM rates have pretty much stabilized, you'll probably want to go with a longer term to lock in higher rates, but it also ties you up if you might need the money more quickly. As rates fall and continue to do so, you're better off with longer terms. As CD rates rise, go with the shorter terms. The penalty for early withdrawal can be substantial. For many years I have laddered my CDs to mature monthly in amounts I would need if my income was shut off (i.e. job downsizing).

    A note on liquidity of mutual funds. You should be able to close your acct and get a check within a week, faster if you use wire transfer, but that'll cost you. If there is a local office, you could close a brokerage acct and get a check very quickly (3 days or less).

    It sounds like all you're interested in right now is short term savings. If that's the case, you could hardly go wrong with 3-month, 6-month CDs. Do some research and find some high rates. Forget the banks, unless it's an internet bank or a savings bank, local banks rarely can compete. Don't be sucked into longer terms unless you know you won't need the money.
    Are you local Indy? Try Landmark Savings Bank.

    And in the meantime, do some research on investing, so that when you have some substantial money and can invest it, you'll know what not to do with it.
    Don't thank me, I'll kill ya.

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