Interest rates on safe places to put money are pathetic these days. So where can you stash cash for shorter term goals (like a new car, vacation, house down payment) or your emergency fund? Risking money in the stock marketor even the bond marketis a bad idea when you'll need your cash in less than five years, so here's how I might recommend you save for goals like these, and where to put the funds.
- Emergency Fund: $50,000
- Vacation Fund: $10,000
- Home Down payment Fund: $120,000
- Emergency Fund: Immediately
- Vacation Fund: January, 2012
- Home down payment: 4 years
- $56,000 on hand now
- $2,500 per month available for these goals
Where to Put Your Money
- Emergency Fund: Deposit $50,000 immediately to a 5-year Certificate of Deposit with a stable bank or credit union. Even if you need the money before the five years is up, you get more interest after the penalty than in a regular savings or checking account (assuming you leave the money there for at least 18 months).
- Vacation Fund: Put $6,000 into a high yield checking account, and add $2,500 in November and December.
- Home Down Payment Fund: Beginning in January, put $2,500 in a high-yield checking account, automatically depositing the same amount every month for four years.
The word "emergency" in Emergency Fund means a serious, unexpected, or dangerous situation requiring immediate financial action. New cars, quarterly tax bills, and vacation expenses are not unexpected, or dangerous, so set up a separate savings plan for each of those. Keep your emergency fund in it's own account, separate from other money, and spend it only in an emergency.
Don't have an Emergency Fund? No problem. Contact me and I can help you make a plan and take steps to set one up. This service is FREE for young doctors who contact me to learn more about my services.