Finally -- Income to Work With
January 15, 2010
At last -- income! Take a bow, Lori! Just need to get through to the first pay day. Now we can finalize our budget and continue building on our plan for Lori to be in her own place by the start of the fall school year. Lori’s challenge has already become just keeping up with all the new demands made of her, and we haven’t had time to discuss much these last two weeks. While cash remains tight this month, by February we must have a few procedures in place, including a regular automated withdrawal into an account earmarked for her rental deposit and emergency cash.
Lori and I haven’t yet determined the best investment for the savings she is about to begin accumulating. Many people just building their savings accounts are unsure whether to put any of their hard earned money “at risk,” particularly during a period of economic upheaval. I remind these new investor/savers some of the best (and least expensive) investing opportunities exist during periods of economic uncertainty. Before investing, though, you need to determine the approximate period of time before you may need these funds and your individual risk tolerance, meaning your ability to withstand the emotional and financial impact of your investment losing value.
For Lori, all of the money she will be saving during this year may be needed quickly, certainly within the next 1-3 years. Certificates of Deposit (CD’s), bank money market accounts and savings accounts are the appropriate options for her to consider. A mistake beginning investors often make is to allow their money to be “lazy,” sitting in a checking account earning nothing. Even in our current low interest rate environment there can be a difference of 1% point among interest rates offered at local banks and credit unions. On an average balance of $2500 that is worth $25 for the year, and while that is not going to materially change anyone’s budget, the mindset that is created is invaluable. Repeating the discipline of making the most of every dollar creates a sense of personal pride and responsibility that will increase the odds of more smart financial decisions, both big and small.
Lori and I will now need to project out just what her monthly income allows her to reasonably spend on rent and then Lori will need to investigate if the level of rent we project she can comfortably spend provides a suitable apartment for her family.