Author Topic: budgeting for medium term large capital expenses (what to do with the cash)?  (Read 973 times)

bluewater

  • 5 O'Clock Shadow
  • *
  • Posts: 27
Hi all, perhaps my google fu is off but if someone could point me to a thread or post a suggestion or two I'd appreciate it.

Trying to do some 5-7 year savings goals specifically for big ticket items like a new roof, new used vehicles, HVAC system, etc.  Basically large expenses that are not if but when on a somewhat loose schedule meaning the roof could go in year 5 or in year 7 but it will inevitably need replacement.  Seems like I've got on the order of 65k+ of expenses that will hit somewhere in 5-7 years (the roof being the biggest expense and question mark). 

Currently I've got a capital one online savings account that funnels a weekly amount into a roof fund, car fund, etc. However, after a couple of years its going to seem wasteful to have so much cash sitting earning a paltry return.  We're in the bad habit currently of having a large checking account balance and while fortunate to be able to just write checks as needed I'd like to get our little soldiers working more efficiently for us. 

How do others handle these large cash expenses?  Funnel it all into the index funds and sell positions when the actually need arises?  Thanks in advance!

rubybeth

  • Handlebar Stache
  • *****
  • Posts: 1402
  • Location: Midwest
I have a money market fund with Ally and a savings account with Ally that are linked to my Fidelity brokerage account. The savings account gets a higher rate of return (like 1%) whereas the money market has a debit card and free checks, so makes it handy to do things like what we did last weekend--buy a used car. I just transferred funds from the savings to the money market on Saturday morning, two hours later, wrote a check for the car.

I would estimate approximately when those expenses might happen (like, make a timeline), and then see how much cash on hand is really necessary. An index fund might not be the best place in case the market is down when you need the funds, but if these expenses are many years away, it does seem weird to save for them in cash without the growth that you'd get in the market. Curious to see what others will say.

frugaliknowit

  • Handlebar Stache
  • *****
  • Posts: 1671
I use a balanced fund for "possible car purchase" (VTMFX). 

In your case, I might have some in a balanced fund, some in savings or CDs.  100% in savings/CDs will likely have eroded purchasing power; 100% in S&P 500 or similar is too risky.  Maybe 30-50% stocks would be optimal?
« Last Edit: January 11, 2018, 09:58:29 AM by frugaliknowit »

Metta

  • Pencil Stache
  • ****
  • Posts: 663
We keep it in a SALLIEMAE money market. It pays 1.45% APR which isn't a lot but it is better than keeping it in the checking account. Also they allow you to write checks from the account and don't charge fees. We've been pretty pleased with it.
« Last Edit: January 11, 2018, 10:16:01 AM by Metta »

bluewater

  • 5 O'Clock Shadow
  • *
  • Posts: 27
Thanks for the replies. Weíre getting 1% in the online savings account but good to know about Sallie Mae.  Iíll look into the balanced fund. Thatís an interesting idea.