Thursday, May 29, 2008

What to do with $5,000?

I've struggling with a rather good personal finance dilemma since updating my net worth last month.

From the left side bar you can see that my Money Market for my Emergency Fund is nearing $15,000. I've made a rule of keeping at least $10,000 in my emergency fund which equates to a little over 5 months worth of expenses at my current spending. However, if a real emergency occurred I most likely would cut back on spending including eating out, entertainment, and savings which would extend my emergency fund to over 9 months worth of expenses. All in all I feel very comfortable with having an emergency fund of $10,000 even given my current work situation.

I have my pay checks and expense reimbursements direct deposited into my Money Market and then only transfer the funds I need into my checking to pay bills, this allows all of my savings to gather in my Money Market, plus earn a little extra interest. In the past when I reached $15,000 I would then take $5,000 and transfer it into a higher interest earning CD ear marked for my future house down payment.

I continued this method even after reaching my House Down Payment goal. I now have over $57,000 for a down payment which is over the 20% needed for any house I would choose -- the price range of houses I'd feel comfortable buying would be around (most likely less than) $250,000. So there's not a real need to put the $5,000 from my money market towards my house down payment funds.

So what do I do with this $5,000? (See I told you it was a good dilemma to have).

My options they way I look at it are:
- Earmark it for additional money towards a house
- Add it to my car savings pot so that I'm closer to achieving that goal
- Set it aside and forget about it until I really need/want to use it for something
- Invest this money in the stock market, since I don't really need it for anything it won't actually hurt me if its all lost
- Blow it --- but I can't think of anything that would really be worth $5,000, plus the saver in me really struggles to part with even a penny

I've basically ruled out blowing it, and I'm am just too overwhelmed by the stock market right now so I've ruled that out. That pretty much leaves my options as house, car, or hold on to it. Since I couldn't make up my mind I've opted to combine the three. I'm going to officially earmark the $5,000 towards my future car and add it to my emigrant direct savings account. I have decided to add $5,000 to my car savings, primarily so that my monthly contribution does not have to increase and now I have a reasonable chance of achieving $20,000 in the next 6 years when I would start thinking about purchasing a new car. And since all of this money is in a saving account its easily movable so I can always change my mind at a later date since most likely I'll be buying a house before I buy a new car plus I can always transfer the $5,000 to something else if I finally decide a reason to hang on to it.

I've also decided to increase my monthly car savings contribution to $150 in an effort to achieve the $20,000 with in 6 years. I have another financial dilemma, what should my next savings goal/plan be since I think I'm on track with everything else. I know I probably should start investing outside of my retirement accounts but to be honest it just plain scares me.


Kyle said...

I vote for either beer or the stock market. Or vacation. I just bought round-trip tickets to Puerto Rico for $240.

"Future Millionaire" said...

@ Kyle - lol I thought about beer, but then realized I'd have to start going to AA if I bought $5,000 worth of beer.

No Debt Plan said...

Great job on all of the saving. I would hold onto the money for now -- put it into a CD or savings account.

You will have a thousand unknown expenses when you move into a new home -- moving truck/company, and then you have to furnish the new place.

Until you have a definitive timeline, investing is not proper. You need to have a structured plan around your investment before moving forward.

"Future Millionaire" said...

I've received a few emails about how could I just find $5,000 and I thought I'd clarify. It wasn't that I just suddenly had $5,000. Several years ago I started saving for a house down payment, I got into the habit of saving the money each month in my emergency fund money market since it was movable there and had reasonable interest rates. I've continued this habit for the last year even thought I had met my down payment goal. Its just a matter of now deciding what to do with the money I've purposely saved.

Hope that helps better explain. Trust me I too wish I'd suddenly woken up one day and had an extra money.

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