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.