Building "oh crap" fund with extra monthly income.

Madpanda · February 2010

Very soon I will finish paying off my car and be done with a multi-year dental work ... campaign. This will lead to me having an extra ~$500 a month after taxes etc.

I want to start building up an "oh crap my car broke, or I lost my job" type of fund. My priorities would be

1) Accessibility, i would need to be able to pull from this without any major drawbacks in a relatively short (2-4 weeks) time.

2) Automation, my employer lets me direct portions of take home pay to different bank accounts, I can also do this via my bank's (chase) website. Ideally the whole thing would happen without any action from me past the initial setup.

3) Interest, if there is some way I can make a little extra off of this per month that would be great.

bowen · February 2010

I don't think anything but a savings account will work for you there, and this is what they were designed for anyways. Just dump the $500 a month in there and save as much as you can.

nuclearalchemist · February 2010

Yeah, for the time constraints, you pretty much are just looking at a savings account. Anything else would have restrictions on access, etc.

Dark_Side · February 2010

I keep an oh crap fund as well. The easiest thing I've found is just to start a savings account, the only real drawback being that you will make laughable interest on it, but the funds are immediately accessible. If you go the investment route, something like a money market account through ING would make you much better interest, but I can't remember how easy it is to take money back out quickly.

As to actual investing like stocks and such, I would try and keep that separate, as it's not always easy get the money back quickly, and if you get into a situation where you're waiting long term to make money on a stock, but need the money today, you could take a substantial hit to your investment. And you will be in that situation unless you're trying to go the day trader route.

mts · February 2010

just set up an automatic transfer on payday either through your employer or bank. then dont touch it until you need it

bowen · February 2010

You may want to consider taking overdraft protection off your accounts too, if you have a checking account through the same bank. Especially if you have the habit of bouncing checks.

Jimmy King · February 2010

Yep, do the savings account thing. If you look at the online banks, they usually have much higher interest rates than the brick and mortar banks. I currently use virtualbank for my savings account (I think actually a money market account). At under $10k you get .8% APY and it goes up from there. At one point the starting interest was 4.5%... I miss those days. It takes 2-3 days to move money in and out of the account. You can probably set something up with work to have it automatically put in there, but I haven't looked into it.

You aren't doing this for the interest, though. It's not an investment, it's an oh shit fund that you can easily get to but keep separate from your spending money for emergencies. Any interest you can get is just a bonus.

Edith_Bagot-Dix · February 2010

Your best bet is to set up a savings account, as other people have suggested. You should set a reasonable ceiling on how much you want to keep in said account. Three months' living expenses is probably a good target. That three month figure shouldn'yt represent an end to your savings, but rather it's enough to handle a lot of short term emergencies and probably sufficient to give you a buffer to turn other assets into cash if you are facing a real calamity. Once you reach that, look at some other, more long term options for saving your money. Stocks are a possibility here, as are GICs/Certificates of Deposit (not a great return here), bonds or something like mutual funds if you don't want to deal with managing the money yourself. My own two bits on the latter is that if you're considering a mutual fund because you don't feel you know enough about investing, go with an index fund. Most mutual funds fail to outperform the market with any degree of consistency, and if you have the skill and are willing to put in the effort to research a fund well enough to have some assurance that it will outperform, then you may as well just handle your investments yourself.

MindLib · February 2010

If you are as sloppy with your finances as I am; Some banks have this program where when you get your DD or deposit your paycheck they automatically take a certain percentage out of it and put it into a savings account. Or they take a little each month and toss it in. This worked extremely well for me, and before I knew it I had a strong little nest egg.

Deebaser · February 2010

Chase is a good choice. If you have direct deposit going into your Chase Checking, there is no minimum for a savings account (which I really like in a "OH SHIT! Fund")

2nd, you're able to access the OSF immediately at an ATM

3rd, Chase's online banking makes it easy as hell to set up recurring weekly transfers from checking to savings.

Djeet · February 2010

If you want quick access to the cash and also want to earn some interest you can use a site like this to find a checking account that gives you around 4%. I'd do it myself, but cannot be arsed to jump through the hoops (typically you need to do 10+ monthly debit card transactions to get the high % rate, otherwise it'll kick down to a low/non-existent rate).

bowen · February 2010

Wow, that sounds like a good deal. There's gotta be a catch to it. Other than obviously paying $4 at ATMs everywhere, and completely negating the interest you gained.

Dog · February 2010

http://www.bankrate.com/

Disrupter · February 2010

Perhaps I should make my own topic...but perhaps I should just continue this discussion.

But lets say one gets passed the "oh shit!" stage, and has like 3 months of pay stashed away in a savings account.

And now its time to look for investments and long term plans where you actually care about interest. What are the options?

I know CDs can get you good returns on a semi-short term (6 month or so) scale.

I know IRAs are good for retirement and stuff (mainly due to tax breaks and what not you get for using them)

What is a good middle of the road there, what exactly is a mutual fund? What is an index fund? Where should I put my money to have more money later? But not when Im old and blue later.

Djeet · February 2010

bowen wrote: »

Wow, that sounds like a good deal. There's gotta be a catch to it. Other than obviously paying $4 at ATMs everywhere, and completely negating the interest you gained.

You'll need to check the specific conditions of each promotion, usually they are: at least 10 debit transactions per month (ATM withdrawals do not count), at least once monthly direct deposit/transfer to the account, and sign up for electronic notifications. These banks are usually smaller community banks or credit unions. Some promotions do refund some to all ATM charges. The promotions change constantly (meaning something that looks great today may not be available next week).

Dog · February 2010

Disrupter wrote: »

Perhaps I should make my own topic...but perhaps I should just continue this discussion.

But lets say one gets passed the "oh shit!" stage, and has like 3 months of pay stashed away in a savings account.

And now its time to look for investments and long term plans where you actually care about interest. What are the options?

I know CDs can get you good returns on a semi-short term (6 month or so) scale.

I know IRAs are good for retirement and stuff (mainly due to tax breaks and what not you get for using them)

What is a good middle of the road there, what exactly is a mutual fund? What is an index fund? Where should I put my money to have more money later? But not when Im old and blue later.

mutual funds are investment vehicles that are composed of many smaller funds, individual stocks, bonds, securities, etc. They are usually considered a smart investment because unlike individual stocks, it would take a marketwide crash for them to actually decrease significantly. Index funds are the same but instead of following a specific sector, they track an index like the S&P.

IRAs are for retirement only (with a small handful of exceptions), so if you are just looking for "savings" and not saving for retirement, you'd want to look into straight mutual funds and brokerage.

CDs are not very good right now because the rates are awful and I don't even think some of them are better than the rate of inflation.

As far as where to get started

http://www.investopedia.com

http://www.vanguard.com

http://www.morningstar.com

Dog · February 2010

Also, just because you see a fund with a good return percentage doesn't mean it's the best thing in the world to invest in (see: Precious Metals), and also you need to be wary of costs associated with the funds. Having better returns is always good, but at the same time if you are getting raped by fees that might end up negating itself down the line.

saggio · February 2010

Cash is the most liquid financial instrument you can hold, and is far superior to stocks, bonds, or commodities when you need to buy things fast. So, get yourself a savings account with an interest rate which will keep your principal above inflation and start depositing. I don't know how it works in the U.S., but in Canada, the CDIC guarantees all savings up to $100,000.00 for individuals - so if a bank or a credit union collapses or goes under in some way, you aren't screwed out of your money. If you are going to be saving cash (as opposed to purchasing securities or other things which the bank can't lend out) of any significant amount, then you should investigate and see if there is something similar available to you.

It would really suck to save up $10k or something and have the bank go under just at the time you need it.

Djeet · February 2010

In the USA FDIC insures banks, individual accounts upto $250K. You will want to make sure the bank/credit union is FDIC insured. If you have millions, you might want to split it up amongst several banks.

Also IRAs are not investments, they are accounts in which you can use the funds to make investments, and the profits are tax-deferred (traditional) or tax-free (Roth).

jimb213 · February 2010

I've seen personal finance bloggers say good things about ING direct savings accounts. They offer higher interest rates than most other banks, and you can automate sending money to it, and you can have sub-accounts, so say a vacation account, a new car account, a rainy day account, or whatever, all within your main savings account.

Dog · February 2010

ING's savings is good if you dump a LOT of money into it, otherwise it's pretty average

Blake T · February 2010

Disrupter wrote: »

Perhaps I should make my own topic...but perhaps I should just continue this discussion.

But lets say one gets passed the "oh shit!" stage, and has like 3 months of pay stashed away in a savings account.

And now its time to look for investments and long term plans where you actually care about interest. What are the options?

I know CDs can get you good returns on a semi-short term (6 month or so) scale.

I know IRAs are good for retirement and stuff (mainly due to tax breaks and what not you get for using them)

What is a good middle of the road there, what exactly is a mutual fund? What is an index fund? Where should I put my money to have more money later? But not when Im old and blue later.

Get a financial advisor.

People think they are for people that own silk crevats but they are not.

Basically they talk to you and assess the risks that you are prepared to take and how long you want to invest your money for. Really you shouldn't look at investing until you want to not access the money for 7+ years.

Dark_Side · February 2010

Disrupter wrote: »

Perhaps I should make my own topic...but perhaps I should just continue this discussion.

But lets say one gets passed the "oh shit!" stage, and has like 3 months of pay stashed away in a savings account.

And now its time to look for investments and long term plans where you actually care about interest. What are the options?

I know CDs can get you good returns on a semi-short term (6 month or so) scale.

I know IRAs are good for retirement and stuff (mainly due to tax breaks and what not you get for using them)

What is a good middle of the road there, what exactly is a mutual fund? What is an index fund? Where should I put my money to have more money later? But not when Im old and blue later.

There's a guy at my office who says that when you're young, you can afford to be riskier with your investments, since you have plenty of time to gain it back, I took his advice and started investing in stocks, and you might want to look there too. For awhile I was beating the DOW and gaining a much better return on my investments then they would have made in savings. But not so much recently. Middle of the road would likely be mutual funds as already noted above, and you could even try working in some bonds too, which are considered a more conservative investment.

Dog · February 2010

There are plenty of aggressive mutual funds, and they are always a safer bet than trying to play the see saw stock game as a faux day trader.

Astrocookie · February 2010

4% starting interest rates used to be a norm?

Are those days ever coming back?

Also how big are the "good returns" that we are talking about with mutual funds? Like 5%?

Edith_Bagot-Dix · February 2010

Astrocookie wrote: »

4% starting interest rates used to be a norm?

Are those days ever coming back?

Also how big are the "good returns" that we are talking about with mutual funds? Like 5%?

They will probably be back some day, these things move on a cycle. We are currently at historically low interest rates. Thirty years ago the rates were in the double digits. There are a lot of things that effect the movement of interest rates, but in general, low interest rates are used to promote economic growth (it makes it cheaper to borrow money to start or expand a business, and it makes stocks a more attractive purchase for investors seeking larger returns) and high interest rates are used to "cool off" a hot economy, helping to combat bubbles and inflation (they make it more attractive to save and more expensive to borrow, and it makes stocks less attractive since you can get a good, safe return from simply putting your money in a CD/GIC or buying bonds). If the economic recovery goes well, you will see interest rates gradually rise. If it goes poorly, you'll probably see something akin to the "stagflation" of the 1970s, where things keep getting more expensive (inflation) but there is little economic growth (and hence little wage growth).

Dog · February 2010

Astrocookie wrote: »

Also how big are the "good returns" that we are talking about with mutual funds? Like 5%?

https://personal.vanguard.com/us/funds/vanguard/all?reset=true&mgmt=a

Astrocookie · February 2010

robothero wrote: »

Astrocookie wrote: »

Also how big are the "good returns" that we are talking about with mutual funds? Like 5%?

https://personal.vanguard.com/us/funds/vanguard/all?reset=true&mgmt=a

So can you explain what's going on here?

Why are the 1 year returns in the double digits and then 5 year and 10 years are like 1-4%.

Does that mean on some years you get good returns and others you get really really shitty returns and in fact even losses?

Deebaser · February 2010

Because Q4 2008 Sucked HARD.

Dog · February 2010

Look at what has happened in the past yearish in the economy. The dow was at 6000 at its low, now it's above 10000 (or about 30%). A 4k jump is absolutely massive in terms of returns. Mutual funds are also usually specialized into a group of sectors, so you have something like Windsor which is mostly tech stocks (but has other stuff to balance it out) so some of them offer more growth than others depending on what's going on.

Precious metals are always high or low depending on what's going on in the world, and since it's retardedly aggressive you'll see massive gains one quarter which will then be completely negated the next. It's why there is a holding period for them. You should also ignore money market funds, as those are basically just a way for people to keep liquidity. For example, if you own a brokerage account, you usually take your payouts into a money market.

Also it's important to remember that mutual funds are things you want to hold for closer to 5 years (at least), not 1 year or less.

Astrocookie · February 2010

robothero wrote: »

Look at what has happened in the past yearish in the economy. The dow was at 6000 at its low, now it's above 10000 (or about 30%). A 4k jump is absolutely massive in terms of returns. Mutual funds are also usually specialized into a group of sectors, so you have something like Windsor which is mostly tech stocks (but has other stuff to balance it out) so some of them offer more growth than others depending on what's going on.

Precious metals are always high or low depending on what's going on in the world, and since it's retardedly aggressive you'll see massive gains one quarter which will then be completely negated the next. It's why there is a holding period for them. You should also ignore money market funds, as those are basically just a way for people to keep liquidity. For example, if you own a brokerage account, you usually take your payouts into a money market.

Also it's important to remember that mutual funds are things you want to hold for closer to 5 years (at least), not 1 year or less.

Yea I think I have about 20k I can put away for 5 years. I won't miss it if I lose it all so I'll probably go with something higher risk.

But is now a good time to get in on mutual funds with the way the economy is? And what exactly should you look at to determine what makes a good fund? Maybe I need a book

Dog · February 2010

Legally I can't answer any of those questions

But two things to think of:

You're young right? The economy is bad, but like we saw last year it's rebounding. This is your chance to get in while things are cheap, and if you lose some money you're young.

You need to diversify. Don't just pick one fund, pick at least three (and include an international one!).

This is the point of the conversation where, if you're serious about investing 20k, you talk to someone certified to talk to you about how to invest that. Vanguard, Fidelity, T Rowe Price, Janney, SmithBarney, wherever you want

Also, as opposed to a book, check out investopedia.

Treeloot · February 2010

Blaket wrote: »

Disrupter wrote: »

Perhaps I should make my own topic...but perhaps I should just continue this discussion.

But lets say one gets passed the "oh shit!" stage, and has like 3 months of pay stashed away in a savings account.

And now its time to look for investments and long term plans where you actually care about interest. What are the options?

I know CDs can get you good returns on a semi-short term (6 month or so) scale.

I know IRAs are good for retirement and stuff (mainly due to tax breaks and what not you get for using them)

What is a good middle of the road there, what exactly is a mutual fund? What is an index fund? Where should I put my money to have more money later? But not when Im old and blue later.

Get a financial advisor.

People think they are for people that own silk crevats but they are not.

Basically they talk to you and assess the risks that you are prepared to take and how long you want to invest your money for. Really you shouldn't look at investing until you want to not access the money for 7+ years.

Most financial advisers are just financial salesmen. They'll sell you whatever crap gets them the biggest commission.

Dog · February 2010

Categorically false.

bowen · February 2010

Could be technically true, as the more they make the more commission they get from your funds right? So while this is true, it's also false because you benefit from their success.

Astrocookie · February 2010

When you say talk to one of these financial companies, you mean like talk to an actual dude? On the phone or in person? I wouldn't even know where to go for that.

And how do I know which of those financial advisers is even the best or better than others?

Saammiel · February 2010

bowen wrote: »

Could be technically true, as the more they make the more commission they get from your funds right? So while this is true, it's also false because you benefit from their success.

There are flat fee financial advisors that don't receive any commissions.

bowen · February 2010

Word of mouth, ask your parents, friends, colleagues, boss. Get names of their financial advisers.

bowen · February 2010

Saammiel wrote: »

bowen wrote: »

Could be technically true, as the more they make the more commission they get from your funds right? So while this is true, it's also false because you benefit from their success.

There are flat fee financial advisors that don't receive any commissions.

Also true.

Dog · February 2010

Mutual Fund companies don't work like that though. The dude who lives down the street who is good with finances might, but with companies they make their money off of fund fees and transfer fees.

Dog · February 2010

Astrocookie wrote: »

When you say talk to one of these financial companies, you mean like talk to an actual dude? On the phone or in person? I wouldn't even know where to go for that.

And how do I know which of those financial advisers is even the best or better than others?

Yes, you can call them up and they have licensed people who will talk to you.

I won't tell you which one is better (as I'm inherintly biased), but just remember that they all have similar funds but the fees, minimums, and other intangibles are different depending on where you go.

Penny Arcade

Building "oh crap" fund with extra monthly income.

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