The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: mangofish on June 07, 2015, 12:01:46 PM
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This is my very first post after lurking since around January 2015. I have a rather specific question that I haven't seen a good answer to.
I am self-employed with a highly variable income. I am not yet an LLC or S-Corp, so I pay quarterly estimated taxes as an individual. Every time I get paid, I set aside 35% for my eventual tax bill. When the time rolls around for me to make my quarterly tax payments, I pull from that amount I've saved, but since my income is going up, I am finding that I have more saved than what my tax advisor set me up with as a "safe estimate" payment plan for this year.
My question is, where is the best, most mustachian place to park the extra money I have saved over and above my "safe-estimate* payments?
I am looking at the various pre-paid cards that have 5% interest rates associated with them, but they seem a little dauntingly difficult to actually get the money back out again. I've seen them recommended for an emergency fund, but this is money I will most likely need in a year's time.
I am still in the debt-repayment part of growing my stache, so every little bit of extra money earned in interest is helpful for me.
Thank you very much for your advice!
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It appears this is money you might need in time measured in months. If so, some online savings (e.g., Ally, GE Capital, Synchrony, etc.) will get you ~1%. You can do even better on small amounts of money with promotional rates at some credit unions.
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1% is very low. Doesn't even keep up with inflation. If I were you I'd have 2 different pots.
Put your "best guess" amount n a savings account so its completely liquid. Many Credit unions offer a 1% or similar rate.
Then take the difference between your best guess and worst case scenario and put it in something higher yield, but less liquid. Like ETFs. Do your best to avoid pulling this money out.
I did it this way for the past 3 years. And every time my best guess came up short, it was only by 1k or less and I was able to just take it out of my checking and not touch the ETFs, My high yield fund has worked its way up to 24k in the mean time.
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This is my very first post after lurking since around January 2015. I have a rather specific question that I haven't seen a good answer to.
I am self-employed with a highly variable income. I am not yet an LLC or S-Corp, so I pay quarterly estimated taxes as an individual. Every time I get paid, I set aside 35% for my eventual tax bill. When the time rolls around for me to make my quarterly tax payments, I pull from that amount I've saved, but since my income is going up, I am finding that I have more saved than what my tax advisor set me up with as a "safe estimate" payment plan for this year.
My question is, where is the best, most mustachian place to park the extra money I have saved over and above my "safe-estimate* payments?
I am looking at the various pre-paid cards that have 5% interest rates associated with them, but they seem a little dauntingly difficult to actually get the money back out again. I've seen them recommended for an emergency fund, but this is money I will most likely need in a year's time.
I am still in the debt-repayment part of growing my stache, so every little bit of extra money earned in interest is helpful for me.
Thank you very much for your advice!
If by pre-paid card your talking about accounts like Mango there are ways to make it easy to get money in and out of them. I should point out that I've only done this with Mango so I don't know if it works with any other similar accounts.
First I have an account at Ally which has the ability to set up transfers to and from other bank accounts. This is how I get my money out of Mango.
Another problem you might have is setting up the direct deposit needed to qualify for the 6% savings rate. What I do is every two weeks transfer $25 from my Ally savings account to my Mango account, I could transfer from my checking but this works better for me. It is setup to transfer automatically.
Ally isn't the only bank that has this feature but it is the one I have used and know it works.