What Would I Have to Do Before I Could Start Short-Term Investing?

A list of what I might need financially.

Photo credit: Don DeBold, CC BY 2.0.

I know that I’ve been sharing articles lately about the importance of storing up cash. Everyone’s talking about cash liquidity during our current economic upswing, so we can have money when the swing goes down. Despite that, my mind is still asking me when I can start short-term investing.

It’s something I’ve been thinking about ever since I listened to the Bad With Money episode “What is a Stock?” and heard Sallie Krawcheck of Ellevest explain why we need additional, non-retirement investments. (Tl;dr: they’ll make your savings grow a lot faster than a savings account will. Yes, you can also lose money.)

Is It Time for Me to Start Investing?

But what would I need before I would feel comfortable putting money into a short-term investment? (“Short-term” in this case might mean a year, or two years, or five years. It really depends on how much money my money is making, and when I need that money.)

Here’s what I’m thinking, in terms of my buckets:

$10K in savings.

Yesterday I referenced an expert who said we should have $25K in our cash bucket before we started putting money into the short-term stocks-and-bonds bucket, but that might take me another year. (Should I wait another year?)

I’ll know in the next week or so whether I’ll need to take money out of my savings to pay 2016 taxes beyond the $19,500 in estimated taxes I already paid; I’m thinking that I probably will, because my income jumped last year. I increased my estimated tax payments from 20 to 25 percent of my income in fourth quarter 2016, but it might not have been enough.

If my CPA says I don’t need to pay additional taxes, I’ll have $10K in savings by the end of April and can move to the next goal. If my CPA says I need to pay another $3K in taxes, I’ll have to wait another five or six months before I have $10K in savings again. (I save 10 percent of my pre-tax income, which lately means about $500 every month.)

$5,500 in my Roth IRA.

After I secure that $10K in savings goal, my “ten percent of my income” money will start going towards my Roth IRA until I hit the $5,500 contribution maximum. That could take… 11 months. Okay. I should save more. (Or earn more; that’s probably the smarter and, honestly, easier way of doing it.)

If something happens to cause me to dip into my savings, my money goes back to savings first and then to the Roth IRA until both are at their income goals.

…a moderate risk portfolio of stocks and bonds?

This is where my path splits into two: I could go hard on that $25K cash bucket, as that article I read yesterday advised, or I could start building an investment portfolio.

Or I could split the difference: maybe 10 percent (or more) of my freelancing income goes into the cash bucket and 10 percent (or more) of my author income goes into the investment bucket. (You might have heard that I am publishing a novel this year. I do mention it frequently.)

The best thing about this decision is that I don’t have to make it right this second. I still need to get my savings and Roth IRA buckets filled, so it’s something I’ll have to figure out later this year if all goes well.

But the worst thing about money is wanting to do things with it that you can’t, yet, because you have to earn it first.

So I guess I know what I really need to do before I can start short-term investing: keep working.

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