Quitting my job to pursue my dream! Now how do I pay for it?
March 28, 2013 10:52 AM   Subscribe

I am aggressively saving money so that I can quit my job and start a new life. How should I be investing this money if I need it back in 2-5 years?

I am not happy with my job and am planning a complete life change, which involves moving to a different country and starting a training program in my dream field. I made a budget and have determined that I need to stay at my current job for two more years to save up the money required.

I am lucky enough to have cheap rent and no debt, so I will be saving $3000/month (about 75% of my take home pay). I already have $12,000 in a Capital One 360 (formerly ING) savings account, but I don't think leaving large sums of money just sitting in a savings account is the wisest choice. I don't want to miss an opportunity for greater gains, but I am very risk adverse as losing money means I have to stay at this job for even longer. I've looked at 2-5 year CDs but the rates aren't that great compared to the interest rate on my savings account.

Relevant information: I will be adding $3,000 per month for two more years, so it will be a long series of investments/contributions rather than one lump sum at the beginning. Starting in two years and extending for three years after that, I will be making withdrawals monthly to pay for all of my expenses, so all of the money can't be tied up in a 5 year CD (though some of it can be). I have a Vanguard IRA and a TIAA-CREF 401K and would work with either company again.

I know YANMFA (financial advisor), but, given that information, should I just keep the money in the savings account? Is there a high-interest CD that I don't know about? Is there something else that I haven't considered?
posted by Nickel to Work & Money (6 answers total) 16 users marked this as a favorite
 
I don't know what your savings account is paying, but the 5-year CD at Ally is currently paying something like 1.5% (which is paltry, but that's the market).

You need the money before 5 years, yes--but Ally has low breakage fees. So you can buy a 5-year CD, get the higher rates, and then terminate it early. When I last looked at it, the breakage fee was something like two months' interest. It may have changed--do your research!--but when I was researching this, I discovered that I would beat other available returns within something like 14 months; I came out ahead even with the penalty.

Again, do your research--this may have changed. I am not your financial adviser, and this is not tax, legal or financial advice.
posted by Admiral Haddock at 11:01 AM on March 28, 2013


FYI -- Ally just got bought out. I know they're closing my accounts. Adm Haddock, it may be worth making sure that you won't be finding all of that CD money back in your chequing account at the end of April.
posted by AmandaA at 11:15 AM on March 28, 2013


You can purchase up to $10,000 in United States I-bonds each year, which have a variable interest rate that is set to the rate of inflation twice a year. You can't withdraw for one year after depositing the money, but after that, the only penalty or fee is the surrender of the last 3 months of interest if you withdraw before 5 years. (Ie, if you cash in an I-bond after 18 months, you get your full deposit plus 15 months of interest.)

While this may seem like an extremely tepid investment, consider that the interest rates for savings, checking and money market accounts, as well as certificates of deposit, have often had interest rates that have been *less than the rate of inflation* over the past several years. I-bonds are virtually the only mainstream savings vehicle that provides assurance that you will not lose your savings to inflation, as has become distressingly common.
posted by eschatfische at 11:16 AM on March 28, 2013 [7 favorites]


Consider that even with 100K in bank, a 1% APR is only going to return $1000. Even with compounding over a 3-5 year time line, it's not going to make much difference with where the rates are now. So stash it CDs, or I-Bonds or even a savings account. It's not really going to matter that much over your short time horizon. What's important is that you don't do anything stupid and lose 25% in a market downturn.
posted by COD at 11:51 AM on March 28, 2013


Yeah, park it in one or two insured money market or CD accounts. The likely upside isn't worth the downside risk of anything more aggressive.

Since you plan to move to another country, it might be worthwhile investigating issues related to the exchange rate. It might make sense to hedging against major swings in the exchange rate by incrementally transferring part of your savings to an interest bearing account in your planned destination. This might make you some money, it might loose you some money, but the point would be to trade the possibility of minor losses to reduce the possibility of major losses.
posted by Good Brain at 1:55 PM on March 28, 2013


Thanks all, I will be looking into I bonds, further exploring CDs, and contemplating just leaving it in the savings account (where it's already earning 0.75% APY). Definitely nothing risky.
posted by Nickel at 3:37 PM on March 29, 2013


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