I am in a very fortunate position where I have a little extra every month for a 30-month period, and so I want to make some wise short term saving decisions. In my last column I reflected on starting my “New Car Fund” of R1 500 a month for four years. The other “big spend” I need to save for is an island holiday; I turn 50 in 5.5 years’ time and I want to have an island holiday – how much do I need to save for that? And even more importantly, what is the best way to invest for short term savings?
First, the easy part, how much money will I need? I reckon another R1 500 a month, and voila, in 30 months I’ll have around R45 000, which should take three of us to Zanzibar!
But how do I invest this money to get the most out of my short term savings? I figured my options are: shares, saving in my bond, or a 32-day account. But which is the best option? Realising I needed some financial guru input I decided to speak to Simon.
So we discussed the pros and cons of the three options to maximise my short term savings. First, we explored buying shares monthly. The possible risk with shares is that both of my goals are short-term and time bound, and having to sell at a particular time is risky, as I may need to sell during a bad market period.
Using my bond as a savings account is a good way to offset the interest, but the money sort of ‘disappears’ into the bond, making it very hard to identify how much your car or island holiday fund has actually grown over four years. I am quite a simple person and I want to be able to look at my money and say over four years I invested R45 000 and now I have that plus interest – and that is what I have for my new car or island holiday.
So I have the answer: a 32-day account. Interest rates are not bad, it is a discrete savings account, meaning you have a clear short term savings account that is ring-fenced (so I can watch it grow), it is easier to be disciplined and not touch it for other things, and it’s a relatively stable investment, so I won’t be as subject to market forces at the time I must sell.
What do you all think? Is this the right way to go?
In my next column I am going to look at what my children do with their money – their mistakes and their wise choices, and think about what they are learning about money.