Best way to save money, short term?
Ok. So this is my situation. I recently climbed out of credit card debt and now have a decent amount of dispossable income available to me. I have three short term goals, in priority, they are: 1. Save for a ski trip, sometime next winter, approx $7000 2. Save for an engagment ring, sometime next year, approx $6000 3. Save for a downpayment on a house, summer 2009, approx $12,000 ~~~~ I am currently able to bank approx. $800 bi-weekly. This takes into consideration that my current bills are being paid, and allowing myself $200 spending money. ~~~~ So my question is: What is the best way to save this money. I wouldn't think letting it sit in a standard "Savings" account would help much. In 12 months I hope to have in the ballpark of $9600 in the bank. PS. I'm Canadian, I know it probably won't matter much, but it's a PP when posters ask questions that could change depending where they are. hehe. Cheers
Public Comments
- For such short term goals, usually an online bank savings account or money market account, or even CD, is best -- since they provide the best rates. Not sure if these are available in Canada but in the US I'd recommend ingdirect.com or emigrantdirect.com -- in any case I'd bet comparable online bank accounts are available in Canada. Might check to see if bankrate.com has info for Canadians. Obviously you can try stock or bond mutual funds if you are dissatisfied with bank savings, but there is risk of losing money over such a short horizon.
- You should go to your bank and see if they have a financial planner on staff. Sometimes it's free to see them if you have an account there. A financial planner will be able to direct you to the best appropriate investment product for your situation. Also, they can sit down with you and work out how you feel about risk, how long you want to invest, and what areas of investment you're comfortable with. Now, in Australia, where I'm from, we have this great little website called "morningstar.com.au". It ranks managed funds and other investment products. I googled it for Canada, and this is what I found! http://www.morningstar.ca/globalhome/industry/index.asp You can use this website to find appropriate managed funds for your situation, if you're a hands on kind of person and like to do stuff yourself. Of course, check the backgrounds of the companies first. If you're saving an average of $400 a week, that's $1600 a month. You want $25 000 minimum to cover your goals. At 6% interest, you'd have $19743 in 12 months. This would cover the trip and the ring. The downpayment for a house could take longer. I strongly advise you to save as much as you can for the downpayment. You will save thousands of dollars in interest if you save even a few more thousand before you buy. In 18 months you'd have $30 063, providing you didn't withdraw the amounts for the ring and the ski trip. But if you started all over from scratch once you paid for the ring and the trip, you could decide to wait for another 12 months, and save $19000. This would be much better than $12 000 for a deposit. The bigger the deposit, the better position you're in if you ever get into financial difficulty or lose your job. It happens. So err on the side of caution and save as much as you can. Postponing the house buying process for 6 months lets you look at a much larger number of houses and decide what you really want in a property. It also means that if you find a great property but it's a little more expensive than you first planned, you can afford it. I had a deposit of $60 000 for a house worth about $160 000. I am so grateful I saved that money. I'm on minimum wage and I'll have my house paid off in 5 years. I can't wait.
