Money Should Make Money Right?

Money should be making money right? 

Personal finance bloggers are huge advocates of building emergency funds of 6 months of expenses. It’s actually one of my goals. We want to have saved $20,000 by the end of the year. I’m not sure if we will meet that goal, but at least we will come close to it.

Last night, I bought $3,000 worth of VGHCX shares. I figured since the market was slightly down, I would take advantage of it. After transferring the money to Vanguard, our savings account decreased to $9,000. I want to open my husband’s ROTH IRA, which means I will have to invest $3,000 minimum in his Vanguard ROTH IRA. If I do this our emergency fund will decrease to another $3,000. Granted if I want a month our savings account will stay flat, since I will contribute what we saved in October + November to the ROTH IRA.

My reasoning: The money in our savings account is doing nothing. Seriously, we get like 12 pennies every quarter of interest. That’s awful! I’m depositing thousands of dollars to the bank, and the bank is using it to make money. Not to make ME money, to make the BANK money.

Future savings: We want to buy a house in the near future. We are going to try to save up enough money to buy one by the end of our lease Jan 2014. It’s a pretty crazy goal, but if we make it, it will be great, if we don’t, we will be $1 more dollar closer to our 20% down payment. Knowing that we can pull money from our ROTH IRA (contributions not earnings) at any time for the purchase of our house, makes me wonder if we should max out our ROTH IRA this year, hoping the stocks will make money. I mean if we have to pull $5,000 to contribute to our down payment from our ROTH IRA, maybe the account would have grown to $5300? We would pull $5000 and at least have made $300. Way more than the 12 pennies. I know this is a little risky. What if the market crashes, etc…But the money in the ROTH IRA would be a back up, Just in case we don’t raise enough money for our down payment to avoid PMI. Maybe we may decide to postpone our house purchase to increase our down payment, at least our money would be making money.

Has anybody ever done that? Let me know what your experience is. 

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7 responses to “Money Should Make Money Right?

  1. Pingback: Weekly Round Up on This That and The MBA — ThisThatAndTheMBA.com | Common Sense Approach to Finance·

    • Yes, it’s very frustrating. I deposited $3000 on Tuesday. My account is up $21. Granted I haven’t realized the earnings, but even if I get a $1, it will be more than my savings account!
      I’m already thinking of which fund I’m going to invest in and how much for my hubby’s ROTH IRA. Going to take advantage of the next dip, and deposit another $3000 or $4000 in his ROTH IRA.

  2. In general, we look at money we put into IRAs and 401Ks as money we’re not going to see until we’re 60-something. So we’re not trying to time the market and don’t worry if things fluctuate up or down a whole lot. There’s only been once we’ve considered taking money out – and that would have been to buy a business several years back.
    In my view, putting money in there knowing you could pull it out could make it too easy for you to “double count” and mentally count that money as both house savings and retirement savings – so overestimating your actual savings. As long as you’re careful of that, I think it’s a calculated risk on the market that you seem pretty prepared to make. =)

  3. Personally, I wouldn’t plan on taking *any* of the money out of your Roth IRA to use for a down payment. Some math supporting this idea: http://pfblogwatchdog.com/2012/04/02/misconception-about-roth-ira-first-time-home-buyer-distribution/

    Honestly, if you want to use the money in the next 3-5 years (e.g. to buy a house, a condo, or a car), I would just keep it in an online savings account (e.g. ING or Ally) or at your brick and mortar bank or credit union. That’s what I did with my down payment savings and I’m so glad I didn’t put it in the stock market because then I might have lost money!

    That said, if you do choose to take money out of your Roth IRA to buy a house, you should be keeping however much in there you want to take out in cash, just like it would be outside of your Roth IRA. My annoyance with taking the money out early to buy a house though is that you lose that contribution room forever. And some day, you might make too much money to be able to contribute to a Roth IRA and wish you still had that $10k from when you bought your house!

    If you’re only getting 12 pennies of interest every quarter, where are you putting your savings? I think you can find a higher earning spot for them without putting them in the stock market or into bonds.

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