$10k to put away
Posted on July 2nd, 2008 – 4:39 PMBy Kara McGuire
Sorry I haven’t written lately. I’ve been dreaming about what to do with my stimulus check. I just received my letter from the IRS on Monday saying that the check should be in my mailbox by this Saturday. How time flies.
I’ve been thinking about what we should do with that $1,800 for months now and still haven’t made a decision. In fact, we have the rare occurrence of having an additional $10,000 burning a hole in my checking account from a finished a freelance gig.
And since the crystal ball is cloudy, keeping it liquid but away from evil Splurge’s reach (isn’t that a great name for some monster villain?) is my priority. ESPECIALLY after watching my parents’ flat screen TV for the first time yesterday. Golly is that nicer than my buzzing relic from the late-90s.
So I started to hunt for CD rates, beginning with bankrate.com. I picked a nine-month duration, just in case I owe Uncle Sam more than I expect.
Surprise! You are still not rewarded for locking your money away any more than you are for depositing it in a high-yield savings account earning around 3 percent online.
To be honest, I’m bored with high-yield savings accounts, though. I know that safe savings isn’t supposed to be exciting. But curious to see what other relatively risk-free options are out there, I hit the web.
I’ve mentioned Everbank’s world currency CDs before. And while I have enough money to invest in certain flavors, I could lose principal if the price of the currency I’m invested in takes a dive.
I could help finance someone’s business in a third-world country through Microplace, but nine-month terms yield less than 2 percent. Feeling good might be worth the 1 percent I give up, but if I needed the cash, I’d be out of luck.
So readers, the sum sits in my ING account, twiddling its thumbs at 3 percent. Any other ideas?
7 Responses to "$10k to put away"
I’d say gold, silver, foreign equities or securities. But all that is way too risky in comparison to the strong dollar.
Oh, wait…
What happens to everyone’s “liquid emergency savings” if inflation steals them away as the dollar declines?
This is why I love the textbook financial advice. But I’m just a fear-mongerer. The dollar couldn’t fall by half *again*!
-Ryan
The funny thing about dollars, by the way, is that they fluctuate just like everything else. It might be a good idea to diversify out of them somewhat. If not totally, then maybe partially.
Certainly, you’ll always have to pay your mortgage in dollars, but have you seen the prices for food and gas lately? Lose your job, and emergency savings doesn’t go quite as far as it used to.
-Ryan
One hand of blackjack at Mystic Lake…double it up!
10K would fill up your Roth or Standard IRA for 2008. Or if you have already filled it up you can hold on to it until January and use is for 2009. Many investments are currently “on sale”…
Suze Orman is recommending having 9-12 months in an emergency fund since it could take longer to find jobs if a person needed to.
I think you are starting with the right question — how to get that chunk of cash out of Splurge’s reach. 3% in a savings account seems *way* more boring when, with a few keystrokes, you could turn it into a TV and a vacation and a massive Target run and four manicures and a bunch of consignment store furniture (or whatever your hot button impulse buys are).
So if that’s the goal, keeping it safe, put it somewhere where it will be the safest from the influence of internalized consumer appetite while still garnering an interest rate as close to or higher than inflation as you can. For me that’s a CD, for you it might be your ING account or it might be increasing your contributions to your 401 (k) from your paycheck to take advantage of the tax break and using the current dollars to supplement your income. Assess your discipline level and invest accordingly.
But boredom should not be the decision-maker. Just a factor in assessing your discipline level.
is it long-term money or short-term?
If the former, I’d go with a mutual fund. Our long term money is in a target retirement fund & is considered to be part of retirement planning. At Roth IRA funding time, money gets moved from the taxable account to the Roth. If its short term money, I’d go with a money market fund.
If I had a fat new check for $10K, the priorities would be:
1) make sure emergency fund is fully funded - should be in liquid assets, like a money market fund, or higher rate savings (like Kara’s ING).
2) pay down high-interest debt - if necessary allocate 100% to paying down expensive debt
3) make sure IRAs are funded
4) allocate up to 25% for ‘I want it’ spending - but ONLY if I didn’t have high interest rate debt.
5) tuck away for a rainy day; I like mutual funds for this, with full knowledge they can lose value (like over the last 2 months)
