How much of my money should I invest?

March 17, 2012 | By Fitz | Filed in: Personal Finance.

My funds is around 960T and my monthly expense is at 35-40T. If I allocate 8 months worth of Emergency fund (420), that would leave me with 540T. 

My emergency fund will be broken down like this: 210T (6mos.) in money market UITF / 105T (3mos) TD 90days / 105T (3mos) checking account with atm.

(1) Is my emergency fund too big?

(2) Do you think it would be okay to spare a portion of it, maybe around 100T, for possible expenses in the future that will not fall under the emergency expense category? i.e. travel, nice clothes, gadgets, etc.

(3) As a general rule, after establishing an emergency fund and an objective, what percentageof my remaining funds should I invest?

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4 Responses to “How much of my money should I invest?”

  1. ForsakenOne says:

    Congratulations on successfully saving!

    I’m not an expert, but I can give my opinion and hopefully help you weight your options.

    (1) It seems like a big number, but then again so do your monthly expenses. Personally, since i cannot predict what my future emergency would be (much less how expensive) I would not worry about this problem.

    However, because it is a considerable amount, I would focus on making sure that it isn’t just “sitting” around. You’ve already done a good job of that by investing half in a money market UITF.

    If you want to be more proactive, you can:
    – You may also explore using High-yield savings account
    – split the money across different money market UITFs just to see which fund is the best. But of course, that may be a bit of a hassle and you might not really earn that much more from it.

    Overall though, it seems you’ve already done a good job and don’t really need to do anything else regarding this.

    (2) No šŸ™‚

    Sorry, but those things you mentioned should be your investment objectives.

    If you put money in your savings account for those things, you’ll just end up buying those things. Which is good, but in my opinion is like suddenly gorging on fast food after exercising and eating healthy for so long. The negative impact won’t be noticeable, but it seems like a waste of the effort and discipline you’ve shown so far.

    My advice is think of which gadget or other expense you would like, and then invest your money for that. That way you keep your money, make it work for you, and still make your wants come true.

    (3) I don’t know of any rule. But personally, if I was in the same situation, I would invest everything that i won’t need in the foreseeable future.

    I would recommend going through your objectives (ex retirement, starting your own business, house, car, etc) and see if you feel you have sufficient funds invested for them. If yes, and you still have left over money, you put it in a low-risk investment (perhaps a money market UITF or short-term time deposit) until you find an objective for them.

    Of course, I have absolutely no idea what you situation is. And since you’ve gotten to this point, I’d suggest going with what you think is right. Unless that money was just handed to you, I don’t think you would have reached this point if you didn’t make good decisions.

  2. Mr. Earth Bound says:

    Thank you very much for your response! I really appreciate it. I found it very insightful, especially for question no. 2 I realized that it would be better to make those “wants” my goals instead of setting aside money for it – pre-investments.

    Regarding my situation, the money that I set aside excess of my emergency fund really has no immediate need. That is why I want to invest it rather than let it sit in a savings account and be slowly eaten by inflation!

    I also thought of investing everything but I realized that I also want to set aside money for a possible future business venture but if I invest everything in mutual funds and stocks, I will not have anything left to invest in a business just in case something comes up down the line (1-2 year time frame, maybe).

  3. ForsakenOne says:

    In that case, i would recommend you put it in a low-risk investment while you think about what you would like to use it for.

    I think a short-term time deposit might be the logical choice. Based on Fitz’s recent post, Chinabank (i think it was china bank) gives about 3% per annum on a 300K deposit. You wont lose your money, and it will still grow. Or a money market UITF / mutual fund. Those wont fight off inflation (expected by BSP to be 3-5% this year), but you also won’t risk accepting a loss if you suddenly find a purpose for it and need to cash out.

    I think stocks will fight off inflation, and you might consider an equity fund. Or perhaps a Blanced fund (less volatile, part stocks, part bonds).

    It’s really up to you on how much risk you can tolerate. But overall, if you don’t know what it’s for, but you know it’s for something, try a low-risk investment. It won’t grow as much, but you won’t lose money either when you need to cash out.

    But as Fitz said, you need an investment goal. It’ ok that you don’t know it right now. You can afford to have it in a low-risk investment while you think about it. But the sooner you find out what it’s for, the better investment decisions you can make.

    But it really sounds like you have your heart set on starting a business. That’s a good idea. And you seem to have enough capital for it. You may want to consider acting as if you are already starting a business and need to grow your capital first. Fitz’s site has some ideas about starting a business; you can browse those and get an idea on what you’re in for.

    I would advise not investing in stocks, which is really a long-term (and risky) investment – unless you’re a trader (an even then, it’s still risky). You may try investing bonds (either mutual funds or UITFs) ot time-deposits. And while your money is growing, try to study up on staritng a business. There are a multitude of options and things to know regarding that. You might find that 1-2 years is just enough time before you can confidently take the plunge and invest your hard-earned money on your own business.

  4. Bags says:

    Hi ForsakenOne.

    Very good pieces of advise. I have little bit of the same situation with mr. Earh bound and is confused how to invest the money i intend to set aside to start a business.

    You definitely answered my questions and have given me great ideas to consider.

    Btw, i am an Ofw in jeddah and is planning of retiring the corporate world come october this year and hopefully be able to accumulate savings more or less 1.5M with my 1 yr contract. So i am now planning on how to slowly invest on a monthly basis ( i can set aside 140-150k for asvings and investment) till i return to the phils.

    Thank you and i am sure a lot of others like me was enlightened by your advise. Keep it up.

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