Setting Money Aside: Savings, Money Market Funds, Investing, and Retirement

Planning your savings, budget, and financial goals:

Setting a little money aside in a secure savings should be your first task. Most people say set 3-5 months worth of living expenses aside in emergency savings in case of hard times. Aside from that, I am comfortable knowing that I have a small IRA fund, some funds for playing in the stock market in my personal Brokerage account, and enough in my savings account that I could make a decision to move to another country at anytime I want, without having other income for at least 3 months (additional to my 3-5 month emergency savings) while staying on target with my other savings. Sound aggressive? Keep reading!

The problem (and opportunity) with saying “3-5 months of living” is that living for 3-5 months could be really cheap, depending on what you are doing and where you are. I’ve stayed in places around China as well as in the United States for a month on a few hundred dollars. The only expense that is hard and inflexible is your student loan debt (which we will discuss putting on autopilot through side income a little later on).

How much do you really need to live the life you want? This is a fun exercise: write down a summary of the life you are aiming for, 6 months in Europe, say, and then working toward a down payment on a house in 12 months. Then write down what your monthly expenses are now, and what can be cut to make your dream a reality. Be honest with your self, and you’ll see that actually life can be pretty cheap and those dreams suddenly become much more attainable.


Money Market Savings Accounts: 

You have some money padding your savings account in case of emergency, but you want to have another reserve of liquid savings that is not sitting idly, but making a small amount of capital gains for you (liquid being that you can pull the money out with little or no penalties without much notice, and capital gains being more than the meager .25% paid by your bank savings account).

A great choice would be something like NorthWestern Mutual’s Short Term Money Market Funds which have a low minimum balance, reasonable fees and almost no penalties for quick withdraw. There won’t be extraordinary gains on these savings, but about 4-8 times as high as you will expect with a standard savings account. Do some research to find what is the best option for your time horizon, and the amount you plan to hold.


Personal Investing:

Opening a personal investing account is incredibly easy – all you need is about 10 minutes online, and to commit to the minimum balance. Most online brokers require $500-$1000 minimum initial balance. Otherwise, you just need to sign up, verify your account, and start trading. is a great place to start as a new investor. With a minimum balance of just $500 and per trade fees of only $7, it’s the cheapest option. They also don’t have any fees for transferring to a new account, so when you are ready for a more robust account later (Charles Schwab, say) then you can easily transfer your account over for no charge.


Retirement Accounts:

Lastly, consider the need to start saving for retirement with an Individual Retirement Account (IRA). The traditional IRA is a way for individuals to contribute money to a retirement savings with tax-deferred benefits. In a traditional IRA, the amount contributed is tax-free until it is ready to be pulled out. With a Roth IRA, the amount is taxed at a current lowered rate, and tax free upon removal. Both will have fees for taking money out before the age of 59 1/2.

Do your homework to decide which option is best for you. Here is a great comparison article.



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