Author Topic: Short term savings vs investment  (Read 2089 times)

vietbtran

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Short term savings vs investment
« on: July 11, 2014, 05:33:30 PM »
Hello! I'm just starting my career at financial independence and I had a few concerns maybe I could get some input on everyone else's experience.

My question is in regards to how much i should put into my stock portfolio vs how much to save for short term big purchases. I'm 27 years old and in the next 3-5 years I will be buying a house so I'll need a down payment, and I plan to get married which means I'll have to make a trip out to Vietnam with my future wife and family. My girlfriend is not a mustachian, she is just starting pharmacy school and is taking out roughly a 150k loan. (we decided to have separate accounts as we have different financial goals so she will be paying down her own student loan if/when we get married)

Anyway I plan on trying to have 50k for my down payment for the house, as far as wedding expenditures I have no idea what that will run but, I'll just assume I'll need a large sum of money in the relatively short term.

Right now I am saving 50% of my income, ~16k a year. How would you allocate that savings? I was thinking of doing maybe 75% liquid savings so i can have cash on hand when I'll need it, leaving my only 25%. Im just getting started in investing but I know the longer time horizon your money has to grow the larger it will get so I want to put as much as possible into my portfolio but at the same time be able to accomplish my more short term family goals.

Anyway any input on advice or things you've done if you were in a similar situation would be great reading for me. Thanks!
« Last Edit: July 11, 2014, 05:35:40 PM by vietbtran »

zolotiyeruki

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Re: Short term savings vs investment
« Reply #1 on: July 12, 2014, 09:14:36 AM »
In our family's budget, we also have a line item for "short term savings."  It covers infrequent expenses (like car insurance) as well as maintains our emergency fund.  It's good that you're looking ahead to those major expenditures!

As far as the wedding goes, my advice is to make it small.  Our wedding was pretty simple, with a total cost (including wedding gown) of about $5k.  My in-laws paid for it, which is part of why it was small--they couldn't afford much!  Plant the seed now for your gf-possibly-future-fiancee to *rent* or *borrow* rather than buy a wedding gown.  We've been married for 11 years, and the gown has been outside its box exactly once since then (when my wife's brother was getting married and his fiancee asked to try it on in case she wanted to borrow it).

Unless you're worried about a stock market correction, I'd say go ahead and invest the money rather than putting it into a bank account.  If you have an emergency, you can always put it on your credit card while you wait for your investments to get deposited back into your bank account, and pay it off before it starts accruing interest.

GGNoob

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Re: Short term savings vs investment
« Reply #2 on: July 12, 2014, 01:55:02 PM »
Have you ever looked at Betterment.com (referral link)? Betterment lets you separate your money in goals. One of their goals is saving for a house. So you can create a goal saying you want $50,000 for a down payment in 4 years (the middle of 3-5 years). Betterment will tell you what you need to save each month in order to get to that goal and will also tell you the best allocation of stocks/bonds so you don't have too much risk.

You could also create another goal for a wedding. You'll just need to decide how much you will need or want to spend on the wedding and when you will need it. I agree with zolotiyeruki. Don't spend much on a wedding. My wife and I just got married in Vegas. We probably spent around $4-5k. We even paid a photographer to fly out to Vegas with us to take wedding pictures (which included "trash the dress" pictures in state parks near Vegas). Then we had a simple reception back at our home town and the gifts we got pretty much reimbursed us for that.

You didn't mention anything about retirement savings. You should be contributing to your 401k at work to get the maximum employer match. Then you'll probably want to contribute to a Roth or Traditional IRA and max that out ($5,500 a year). Betterment allows you to create IRAs as well, so it's a great place to invest and incredibly simple! There are fees and a lot of people say to stay away from Betterment to get cheaper fees at Vanguard. But I find the benefits of Betterment worth the small fee. Besides, if you sign up with the referral link you get a free $25 which will cover your fees for a little while.