Author Topic: Tell me the flaw in this idea  (Read 2752 times)

k-vette

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Tell me the flaw in this idea
« on: December 14, 2013, 09:25:13 AM »
YNAB's living on last month's income plus betterment = earning interest on "spending" money.

We use YNAB and the whole point is to pay bills with last month's income.  So for a month (or more if you budget further ahead, which I plan on doing) my paychecks come in, sit in a checking account, then go out to pay monthly bills when needed.  As we budget further ahead, the money sits longer. 

So let's say I save 2 months ahead and need $3,000/mo.  Rather than letting it sit in the checking account, what if I move my paychecks into Betterment as soon as they come in?  They sit for 1.5 to 2 months depending on timing of paychecks.  Then when I need to be "paid" I transfer the money back into the checking account and count it as income. 

If there's an average of $4,500 or so at any given time, that's a fair amount of interest long term  I'd just let the excess build up.  If I'm 2 months ahead, my investments could drop in half and I'd still be able to pay the bills.


Thoughts?





A little background if you find it helpful:

A few months ago I started using YNAB.  A friend mentioned it was on sale for $14.99, so I figured it was worth a shot.  WOW!  What a difference that has made.  First by saving hundreds each month, then finding this site through some blog posts there.  Since then I've been actively changing everything about our finances.  I felt that we were frugal and always had money to save - but it wasn't enough.

I'm 25, married, 2 kids, we bought a house exactly 1 year ago when interest rates were low.  (FYI - USDA loan for anyone looking to buy, way better than FHA on monthly payments, fixed interest, and noorta money down if played right.)  Our automatic mortgage payment adds enough principal to cutoff about 7 years as is.  As work bonuses come in I'm trying to cut it down to 15 years.  Past that the amount saved seems better invested.

We have a roth IRA and started contributing when we got married.  No 401k or benefits through work.  The long term potential with the bonus structure is well worth it though.

At the moment, our income is just not enough to accomplish the high savings rate I'd like.  We've cut expenses and now it's time to increase income.


oldladystache

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Re: Tell me the flaw in this idea
« Reply #1 on: December 14, 2013, 09:56:44 AM »
I looked at their website. It doesn't look like they pay interest. They seem to invest your money for you, and take a moderate fee. So when you need your money it may have grown or it may have shrunk. If there was no growth they still get their fee.

I keep my spare money in an online account that pays a small amount of interest, and when I need it I can have it transferred to my checking account (which also pays interest.) I don't pay any fees, and my money is safe there.

k-vette

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Re: Tell me the flaw in this idea
« Reply #2 on: December 14, 2013, 10:28:25 AM »
The advantage is that they dont charge a fee for pulling money in or out.  I'm aware that its an investment account.  Read the article here:  http://www.youneedabudget.com/blog/2012/betterment-review-im-a-huge-fan/

Instead of .75% in my bank account, i can shoot for 6.65% in betterment.  (7% - .35% fee)

Undecided

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Re: Tell me the flaw in this idea
« Reply #3 on: December 14, 2013, 01:07:45 PM »
The advantage is that they dont charge a fee for pulling money in or out.  I'm aware that its an investment account.  Read the article here:  http://www.youneedabudget.com/blog/2012/betterment-review-im-a-huge-fan/

Instead of .75% in my bank account, i can shoot for 6.65% in betterment.  (7% - .35% fee)

If that's what you want, why not just increase your current investment in your standard allocation, adding a non-retirement account at your IRA custodian if needed?

Iron Mike Sharpe

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Re: Tell me the flaw in this idea
« Reply #4 on: December 16, 2013, 07:51:00 AM »
You'll run the risk of your investments losing value when you need them to pay normal bills.

Plus, you will be taxed at the short-term capital gains rate.