Wednesday, March 26, 2008

Overall Financial Plans

You save for short-term goals and invest for long-term ones. It's a statement I read in a book review (but I can't seem to remember the actual book, otherwise I'd probably buy it) that has stuck with me.

Once I move and begin paying rent again, I'm going to have to pay quite a bit of attention to how I handle my money. I'm starting to think about how I want to allocate it as I begin to build up reserves and invesments while simultaneously paying down debt. These aren't necessarily goals in the SMART (specific, measurable, attainable, realistic and timely) sense. Instead, I'm trying to plan out an overall set of intentions for how to save and invest.

In order of priority:

1. Emergency Fund - $1,000. This will be my cash reserves in a high-interest savings account. I plan to keep this fund as a safety net for unplanned emergencies.

2. "Income" Investments - $3,000. This will be my second level safety net. This amount would enable me to get through 2 months of absolutely no income at all without much alteration. That would be enough time for me to find another job or obtain disability if there was a major disruption in my work status. I plan to keep this amount in an income or value index fund. I don't plan to need this, so I'll tolerate fluctuations in the value to get a better overall rate of return. I'll likely continue to invest a small amount ($50) in this fund per month after the initial investment.

3. "Growth" Investments - $?. Here's where I plan to keep the majority of my savings. This will be invested in a growth index fund. I intend to leave this in here for long-term purchases, such as a house, and as my general "building my net worth" account. Because I intend to keep this investment as a long-term solution, I can tolerate larger fluctuations in value for a greater expected rate of return. I'll need $3,000 to capitalize this fund with Vanguard initially, and then will continue to put as much as possible into this fund, but at least $100/month.

4. Savings. I'll use this account for my shorter term purchases that I need to save for, and things that may blur the line between needs and wants. I'll put $100 per month into a separate, high interest savings account and withdraw it as necessary to make purchases. Things such as furniture, a new computer, a new wardrobe, a new car, etc. will fall into this category.

No comments:

Post a Comment