My partner and i want to set aside money for 2 yr, adding to it occasionally. What is the best way to do this?

Question

My boyfriend and I are interested in setting aside a certain amount of money, which we plan to add to every month for the next two years. Our goal is to have a nest egg in two years with which to put a down payment on a little house or with which to help start a life together. What is the best way to do this? We have considered opening up a CD but have since learned that you cannot add to these. Can anyone tell me anything about online savings accounts (are they safe, etc) and other ways to save money? We plan to open with anywhere from 1K-5K in the start of this account. Also, one of us will be in the South working while the other will be in school in the North..so convenience of deposit is a plus. Thanks!

Answer 1

Give it to me...

Answer 2

Since you have a 2 year timeframe, you do not want to buy any long term investments, which generally involve stocks.
Fidelity and Vanguard, among many others, have a number of mutual funds that invest in corporate and government bonds. Be sure to compare expenses and any sales fees.
The aforementioned companies accept direct deposits. So, if your employer(s) will agree, you can have the funds deposited right into your account. Another option is have the funds deducted from your checking account. In both cases, determine whether any fees are being assessed first.

Answer 3

Go to a reputable (A.G. Edwards, Smith Barney, Edward Jones, etc) Investment Firm and invest it (more than likely) in mutual funds. But talk with an investment counselor for the best advice. Mine is in mutual funds and I can add or take from it. Just remember the penalty is always the same for withdrawing, as far as taxes are concerned. NO ONLINE

Answer 4

ING Direct is a good safe option. it pays 4.5% or so. Another option is always mutual funds. They have varying degrees of risk depending on which fund you might pick, but they will probably have better returns than a savings account. Perhaps something like a large cap growth fund.

Answer 5

On-line banking through ING Direct should work for you and the interest rate is good.

You could also find a money market account and deposit your money there as well.

Answer 6

The best way to start saving is by having the amount you want to save deducted automatically from your pay check through the facitlity that you bank with. That way there is a set amount to be taken each month/week, whatever and you will not miss it. But more importantly, you will not forget to save it.

Answer 7

Online savings accounts are safe, especially if they have physical branches. As others mentioned, INGDirect is one option. Personally, I have an HSBC account (5%), but have yet to put money in. After you sign up, you link via the internet the online accounts to your local bank accounts. Then deposit $$ at your local bank, go online, and then transfer it to the online account by yourself. You can check out Bankrate.com for higher interest rates:

http://www.bankrate.com/brm/rate/mmmf_highratehome.asp?params=US,416&product=33

You asked about saving - saving is different from investing. Other posters mentioned mutual funds, and that's investing. Be careful about fees/risk. If you're starting off at 1-5K, then a couple % points of performance isn't going to make much of a difference. So I wouldn't worry too much about investing - I'd focus on saving.

Make money -> Save money -> Invest Money. You guys have to focus on step #2.

As I wrote elsewhere, saving money depends on 2 things:
1) Increasing Income.
2) Decreasing Expenses.

Most people focus a lot on #1, and almost nothing on #2. But IMO, don't worry too much about #1 unless you really have better opportunities within reach; I believe #2 is much more important and doable.

Attempt to lower all your living costs/expenses as much as possible. Aim for a savings rate of 20-50% of income if possible. I only make 18K/yr, but I can still save about 1K/month. Starting with your 1-5K, that's 12K a year - better than nearly all mutual funds & all interest rates. If you 2 guys together can save 1K/month, that's 24K in 2 years.

Most expenses can be decreased dramatically, or even eliminated. Share rent with lots of people, or live at home or in a low-cost area if possible, avoid owning cars (they suck a lot of money), eat out/travel less, buy less (or better yet, nothing) or secondhand, don't engage in expensive sports/hobbies, etc. Cut all water, power, phone + cable bills as low as possible. Basically, you have to eliminate all the financial fat in your life and go on a fiscal diet. You have to go without in your material life - but you'll end up having more $$ in your account.

Extreme goals require extreme methods. Live poor - because actually, you are poor. By my personal definition, if you need a job in order to feed yourself, you're poor. And every dollar you spend makes you poorer - and every dollar you save, richer.

After you've reached your financial timeframe (2 years) or target (24K or whatever), you can ease up or go back to "normal living". However, when you realize that you haven't died and that you've gotten used to Spartan living and saving, you might not want to go back to normal living. You'll probably have discovered that you can still enjoy life without money, and that most of the stuff that money can buy, isn't really worth buying. You're not going to die without modern conveniences - you're going to get stronger. And you're going to be freer - because you'll realize that you don't need what you thought you needed. And, of course, you'll be richer.

Can you imagine the difference between having 24K and 5K? It's not only a big difference in numbers, but also a big difference in financial comfort, security, outlook, and peace of mind. I'd say 2 years of simple living is worth that.

Best wishes to you both -