New Savings Goal
November 16th, 2007 by Grant in: Banking, Goals, SavingI decided I needed a new savings goal. I mean cash, cold hard cash.
I already contribute the allowable amount to both my wife and I’s Roth IRA, and we both get the full matching contribution to our employers retirement plans. The problem is, that money is slated to be used in 30 years or more.
Some people call this an emergency fund. I already have one of those too.
I’m looking for a non-committed cash reserve. Something that will make me a solid 4-5% return in an Emigrant Direct account, and that will provide some completely passive “luxury” money, or “Mad Money” as my wife calls it.
So how much do I want? Ideally, I’d like to have an extra couple hundred bucks a month that I can not feel guilty about spending. As such, I’d need about $50,000 in an online savings account making 4.5% or so to return that figure monthly. So that’s the goal.
$50,000 in cash in the Emigrant Direct account that will just sit there. It will generate about $200 per month passively, that I won’t feel guilty about spending.
So there you have it. There it is. In the right hand column is the measure of how close I am to this goal. I figure it might take me another year or so to get there from my current $19,000 mark, but I think it will be worth it.
Anyone else have a “Mad Money” fund?
Tags: emergency fund | Mad Money | slush fund
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November 16th, 2007 at 11:56 am
We do, it is currently sitting at about $100K. Before everyones jumps all over me we already max our 401(k) and put about that much as well into post-tax funds. We are not eligible for Roth. We are about half way through a 30-40K cash investment into a property so that 100K will be dropping more.
We have been tempted to dip into the ~$400/mo cash flow but the thing you have to remember is that if you spend the interest made each month your money is losing value because of inflation. You really can only spend the delta between inflation and your interest rate (~1.5%) without falling behind.
November 26th, 2007 at 9:10 am
You could also look at high-yielding income stocks and bond funds. A portfolio of these holdings averaging 6-7% will give you your mad money, and will increase the capital over time, further increasing your income. If the market is in a recession, use the income to snatch up more at cheap prices.