Options for Temporary Savings that Grow in the Meantime

3 Replies

Bigger Pockets Nation! After about 3 months of listening to Bigger Pockets Podcast, taking furious notes and reading through many forums as I have questions, I'm ready to make my first post! My wife and I just had a baby, and ended up using most of our savings during the process. We are revisiting our budget, and as I try to tell every dollar where it must go, I come up with a query regarding our savings. I've read through Rich Dad Poor Dad for the second time now and I'm heartily convinced that as I rebuild our savings, I dont want to just put it in an envelope or safe, or a bank account where it's just going to sit. I want to put it somewhere each pay period (I'm going to be putting away about $300+/month) where it can GROW, but when I'm ready to use it, maybe as a downpayment, or as my "skin in the game" in a partnership deal, I won't be facing a penalty for withdrawing that cash? I do have a roth IRA with about 6k in it, and something else I can think of is we have a home that we could put the money into making some value-adding improvements (kitchen and updated interior trim mainly) and maybe then use a HELOC or something of that nature. The sole purpose/intended use of this savings would be for real estate, that a portion of it can be used as purchasing power and a portion of it kept as reserves for vacancy, capital expenditures, holding costs, etc. So, my main question, as the post title states: Where would you suggest someone plug their savings into, where it can grow in the short term with the intention of liquidating or accessing it within a year or two and not getting penalized? Or can it grow and the penalty be minimal? To clarify I'm not looking for magical agressive growth, just something better than cash sitting in a safe or a traditional savings account. Thanks for your time and wisdom, and if there is anything I can help you with, just let me know! Location: Denison/Sherman, Texas

Hey @Jon Penton , depends on when you need the money. I'm assuming that will be sooner than 5 years? If so, then I don't think it is worth risking your down payment being invested in stocks, especially when your growth period is so small in this case. I would open a savings account with an online bank that pays approximately 1.5% (go to bankrate or google highest yield savings accounts).

@Jon Penton , congrats on your little one, and your "thinking ahead" mentality. My suggestion is to place your ongoing savings in the Bank that you believe (after research) will give you the best Loan terms in future. Develop a working relationship with at least one Loan officer, asap.

I don't recommend putting money into a new kitchen etc, if the reason you'd be doing so is because you believe that it would increase your home's appraisal in such a way as to make it easier to get a higher HELOC in future. Appraisals are based on sold comps, so if you're not actually selling, your new granite bench tops will not get you a higher HELOC!

[That's a similar argument that shopaholics use, always justifying spending, at every sale!]

It's your saving history that'll help you most, rather than whether it's $30k, or $35k. My 2c...

@Luke Haug @Brent Coombs Thank you gentlemen. I shared this with my wife and we realized that we actually know a loan officer who we have a good relationship with, so thats a starting point but I know I need to have a couple backup relationships as well that I should start developing. I didn't realize that savings accounts got better than .02% so that's why I wasn't really considering it. Thank you for opening my eyes to that option, I'll begin combing through local banks and what they offer as well as online banks. @Brent Coombs would you say that the way to determine if a bank is going to offer me a favorable loan/rate is to just talk to them when inquiring about their savings account rates and communicate my intentions for the near future? Or maybe just talk to local investors and what their experiences/recommendations are? Yes, I did have a misconception of how an add value play would affect my HELOC, so thank you for clearing that up! Finally, that is really good advice about savings history. My father-in-law had abt 5k saved up but it was just stuffed in a mattress (not literally) and I guess bc he didn't have an account that showed history banks wouldn't loan to him, so he gave my wife the money so she could "gift" it back to him and there be a record of it. That is the kind of squirly stuff I would like to avoid.

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