Thursday, October 22, 2009
Challenge is out - Can you save 34 cents an hour for the next 365 days???
I just got off the phone with Vanguard. I explained to the representative that I wanted an account that could depict the small increments of savings, reducing our grocery expenses or selling books on Amazon. I didn't want it rolled into our other funds, but I needed one that would have a small minimum. And it turns out they have a fund that fits just right!
Let me stress here that I have NO connections to Vanguard and any other fund or even a savings account would work. I am only using them as the example because they tend to have low expense ratios.
The representative told me about the Star fund, which has been around since 1985, and up through September, has had a 9.6 percent annualized return (though she hastened to add that is not a guarantee of future returns.)
The great part about this fund is that it only takes $1000 to open, unlike their various $3000 limit money market and tax managed accounts. The breakdown is 60 percent stocks, 40 percent bonds and you get a very diversified portfolio with exposure to eleven different funds. She said part of the reason they started this fund was that they realized many people would have a hard time coming up with an initial $3000.
The Star fund is not designed for liquidity so if you would need the cash sometime soon, this wouldn't be a good fund. There are no redemption fees, but if you were to sell, it would be a taxable event and of course, we've all seen the wild fluctuations in the markets. And there is a .32 percent management fee that is slightly higher than some of their money market funds at .28 percent or tax managed accounts at .17 percent, but industry wide, this is very reasonable.
The account to me is a nice way to make my goals of reducing our expenses very concrete. To get to $1000 in 365 days (a bit over our original cut-off date), you will need to save or earn an extra $2.74 per day. That breaks down to 34 cents per hour over an eight hour day and that's such a lovely, specific, doable goal for me! I think I'm more apt to note the lights burning upstairs while I type downstairs and the food that could be eaten rather than tossed if I am looking to save at least 34 cents per hour.
My thought is to take our average costs in electric, gas, food, clothing, gifts, personal care, haircuts, furniture, cleaning supplies, etc. and find a monthly average. Every dollar under the average will be set aside for the account. In addition, anything sold on Craigslist or Amazon will go right into the kitty. And my garage sale and plant sale in the spring will go there too.
It would be great if you want to join me in this. I'm going to start as of today. If you can do it before 365 days, that's even better. So start looking around, that quarter you find on the sidewalk this morning means you just need to get another nine cents for that hour.;-).
Best wishes and see you at the finish line. Watch those pennies! Best wishes. Eileen
P.S. A disclaimer - I am SO not a professional financial advisor. Remember I'm the one looking up economic terms each day to build my knowledge. So this may not be the best investment for you. Clearly a savings account could work too. I just liked the fact that the Vanguard Star account was NOT liquid because it will be fun to watch it grow.