$30,000. That’s the minimum you should have saved to buy a $150,000 home – and that just covers your 20% down payment! That’s a lot of money. Saving for a down payment on a home can take a long time. The last thing you want to happen is to see your savings drained by a stupid mistake. Putting your savings in the wrong investment option can destroy your dreams of home ownership. Here’s what you need to know so you don’t take on too much risk.

How Long Do You Have?

       When it comes to choosing an investment option, you need to consider your time horizon – how long you have until you need the money. This is true of any financial goal. The longer you have, the more risk you can afford to take (and the higher your return might be). Once you know your time horizon, you can start considering your investment options.

Cash – Time Horizon: 0 – 5 Days

       Think cash is king? Not when it comes to savings options. Cash may seem like the safest option, but you’ll lose money to inflation. The only reason you should have your down payment in cash is because you need it within a week. Though I wouldn’t walk into a closing with that much cash! A checking account is the equivalent of cash because it usually yields no interest, so just take a check instead.

High-Yield Online Savings Accounts – Time Horizon: 5 Days – 2 Years

       I skipped regular savings accounts because the interest they offer is pitiful compared to high-yield online savings accounts (like ING Direct). High-yield savings accounts offer a decent short-term interest rate and are backed by FDIC insurance. This means they’re risk free up to the insurance limits. If you have less than two years until you need the money, this could be your best option.

Certificates of Deposit (CDs) – Time Horizon: 2 Years – 5 Years

       CDs are a good option if you have a longer time horizon because they’ll let you lock in a fixed rate for a specific number of years. There are three problems here though. First, there is often a minimum purchase amount for CDs – usually $1,000. Since you can’t add on to a CD you already own, you’ll have to buy a new one every time you have the money.

       Second, CDs can take some managing if you don’t keep them all at the same bank. If you’re chasing the highest rates, you’ll probably have to utilize several different banks. This means having several accounts in different places – and that’s not necessarily a good thing.

       And third, putting your money in a CD means it is locked up. You generally can’t get to it early without penalties. This is why I recommend using a high-yield online savings account if you’ve got less than two years. You can pull your money out of there at any time with no penalty.

       If CDs don’t sound like something you’d want to try, I’d recommend looking at short-term government bond mutual funds. Vanguard offers VSGBX and VFISX which both have an investment minimum of $3,000. However, you can make additional investments of only $100 (or $50 if you use automatic deposits) after that point. You can avoid the $20 service fee by signing up for electronic delivery of your statements and other documents. These funds are quite stable and low risk while generally offering slightly higher rates than CDs.

Intermediate-Term Bond Funds – Time Horizon: 5 Years – 10 Years

       Intermediate-term bond mutual funds offer slightly higher returns than the other options but with slightly more risk. You should only consider them if you have five to ten years until you’ll be buying your home. Again, Vanguard is a good choice here. The same minimums apply, but you’ll want to look at funds with the ticker symbols VIPSX, VBIIX, VFITX, VFICX, or VBMFX. You won’t get stellar returns with these options, but they’ll pay you more than enough to beat the other choices and keep up with inflation.

Conservative Stock/Bond Portfolio – Time Horizon: 10 Years – 20 Years

       If you have a good long time until you’ll be buying a house, consider looking at a conservative mix of stocks and bonds for your savings. A good target would be 20-30% in stocks and 70-80% in bonds. A mix like this will give you a reasonable chance of outperforming other options for your savings, but your longer time horizon will decrease the risk of losing money. If you need help figuring out how you should allocate your investments, check out my free portfolio allocation calculator.

Moderate Stock/Bond Portfolio – Time Horizon: 20 Years +

       Finally, if you’re not planning to buy a home for at least twenty years or more, you might consider using a moderate mix of stocks and bonds. In this case, somewhere between 40-60% in stocks and 40-60% in bonds would be a reasonable choice. Again, the long time horizon will help ensure you minimize your chances of losing money, but the more aggressive investment choices will give you the chance of higher profits. See the above link to my free calculator if you’d like to see what a sample portfolio would look like.

Your Thoughts

       What savings options would you use and why? What advice would you give to those who are saving for a house? Share your thoughts in the comments below!

       This article is the ninth in a series on how to get out of debt. If you haven’t already, you should check out the previous articles:


Step 9 – Top Off Your Emergency Fund

       You’ve reached your final milestone. You’ve paid off your debts. Congratulations!!! Enjoy the moment and celebrate the fact that you’ve come so far. You’ve accomplished your goal and you should be joyful.

       But if you want to avoid sinking into debt again, you’re going to have to apply everything you’ve learned along the way and take a couple extra steps to protect yourself. The last two parts of this series will deal with the follow-through.

       After paying off your debt, your next goal should be to bolster your savings so that no emergency will force you into debt again. In Step 5, you built a starter emergency fund that equaled one month’s worth of your living expenses. Now it’s time to top off that fund depending on your circumstances.

       To figure out how much you should have in your emergency fund, think of it in terms of levels of risk. Some people have a very stable situation and may not need as large of a fund. Others will have much more risk in their situation and should consider saving more. These are not hard and fast rules. They’re simply a guideline to help you think about what works for your situation.

Level 1: Three Months of Living Expenses

       Once you’ve got your debt under control, your next emergency fund goal should be three months worth of living expenses. This gives you a large enough cushion to withstand a job loss if you can find another job quickly. It will also help you cover car repairs, some medical bills, and other small to medium sized emergencies. If you’re married and you both have stable jobs, you might feel comfortable stopping here. If you’re single, married with one income, self-employed, or have an unstable job, you’ll want to keep going.

Level 2: Six Months of Living Expenses

       An emergency fund with six months worth of living expenses should be large enough for most people. You’ll have plenty of time to find a new job in most scenarios. However, you might want a larger emergency fund if the economy looks bleak or if you are single or married with one income and you have an unstable job or you are self-employed. In those cases, I’d recommend going for a larger emergency fund.

Level 3: Twelve Months of Living Expenses

       If you’re self-employed or have an unstable job and you rely on only one income, you’re going to want to play it safe and save up twelve months of living expenses in your emergency fund. This will help you make it through rough patches in your career when profits are down or you lose your job. This would also be a great idea if you or your children have medical needs that require large payments at unpredictable intervals.

Adjust for Your Situation

       If you feel that your situation doesn’t fall into one of these specific categories, then use these as guidelines and save what you feel you’ll need. This guide should help most people get close to the right-sized emergency fund for them. Don’t get discouraged if you feel like it’s a lot. Attack this goal in small steps and you’ll quickly make progress. If you have questions, just leave them in the comments and I’ll try to help!

       This series is almost finished! In the last step, I’m going to talk about a couple others things you should consider to help you stay out of debt. This isn’t to say you’ll never use debt again. But the next time you do, it will be a conscious choice based on good and sound reasons. Make sure you’ve signed up for free updates to Provident Planning so you don’t miss out on this important last step! Plus, I’ll be bundling this series with helpful resources and calculators in the future. It’ll be a valuable guide for getting out of debt. If you’ve signed up for free updates, you’ll be sure to see it as soon as it’s available.

       Have you topped off your emergency fund yet? How long did it take, and how did you do it? What level did you choose and why? Let me know in the comments below!


       P.S. Here are some other articles about emergency funds if you’d like to read more:


       In the last part of this series, we talked about the problem with The World’s message. Loving money and believing The World’s message keep us from serving God. Additionally, The World can offer us no eternal reward and the Stuff it tells us to buy can’t be taken with us when we’re dead.

       Today, we’re going to begin talking about the solution to the problem with The World’s message. We’ll only get through part of it now, but we’ll finish up the discussion in the next part of this series.


Where Does the Problem Start?

       In Mark 7:21-23, Jesus clearly tells us where the problems of greed and envy start:

       21 “For from within, out of the hearts of men, proceed evil thoughts, adulteries, sexual sins, murders, thefts, 22 covetings, wickedness, deceit, lustful desires, an evil eye, blasphemy, pride, and foolishness. 23 All these evil things come from within, and defile the man.”

Mark 7:21-23 (WEB)



Broken Heart by CarbonNYC on Flickr       Greed and envy come from within—they’re heart problems. These aren’t the kinds of heart problems that can be fixed by taking the right kinds of medicine, getting enough exercise, or eating right. Greed and envy are reflections of our deepest motives, desires, and attitudes. Humans are inherently prone to these kinds of thoughts because Sin infects every area of our lives. The only way we can get these things out of our hearts is to let God come in and take over.

       For a while at my Bible study we had a guest speaker named Butch Marvin. One of Butch’s favorite sayings is that God doesn’t want your money, your good works, or anything else you think you can offer Him. God only wants your heart—because once He’s got your heart he’ll get everything else as well.


Renew Your Mind!

       For God to fix our hearts and get rid of all the evil things that can come from within us, we have to fully accept Jesus and let Him live in us. That means we have to give up our lives, our hearts, our selfish ambitions—everything! We need to ask God to change our hearts and the way we think. We need to ask Him to keep us focused on His Ways instead of The World’s ways.

       2 Don’t be conformed to this world, but be transformed by the renewing of your mind, so that you may prove what is the good, well-pleasing, and perfect will of God.

Romans 12:2 (WEB)



       God can rid our lives of greed and envy and teach us to be content, if we’ll just ask Him to change the way we think. Only then can we truly understand the great gain that comes from contentment and begin to see God’s perfect will for our lives.

   36 Turn my heart toward your statutes,
       not toward selfish gain.

Psalm 119:36 (WEB)



Human Brain by Gaetan Lee on Flickr       We can start the process of renewing our minds and becoming new people by simply praying to God. David’s simple prayer here is a great way to start—simply asking God to keep us focused on Him and not on This World.

       In the next part of this series, we’ll talk about the next step in this process: getting God’s view on our lives, money, and the things of This World.









Want to read the entire Bible study series on Contentment? Download your free copy of Contentment Is Wealth: A Bible Study on Contentment now!

       Last month, I posted an update about how my wife and I are raising a cow for beef. This is a summary of our activity and costs for month 11. As always, let’s first check Bambi’s growth. Here he is at ten months old:


Bambi - 10 Months Old


       And here he is at eleven months old:


Bambi - 11 Months Old


       Bambi is well over 700 pounds now. He might be nearing 750 but I haven’t put him on our bathroom scales in a while. To give you some perspective, the ring on the silo where his back reaches is about four feet off the ground. He’s still growing at a steady rate of about 2 pounds per day. This isn’t phenomenal by industry standards, but I’m happy with it.

Costs & Time

       I spent a little less time this past month because I’ve become a bit more efficient and because of a change I made a little less than a week ago. (Read on to find out.) His feed cost about the same as last month.

  • Feed – $40.93
  •        

  • Time – 8 hours



       And here are our total costs over the past eleven months:

  • Cost of Bambi – Free!
  •        

  • Castration & Dehorning – $16.00
  •        

  • Milk Replacer – $45.54
  •        

  • Miscellaneous – $46.87
  •        

  • Feed – $362.77
  •        

  • Hay – $88.00
  •        

  • Straw – $20.00
  •        

  • Medicine – $5.00
  •        

  • Total Spent – $584.18
  •        

  • Time – 102 hours



       After almost a year, we’ve spent a total of $584.18 and 102 hours raising a cow for beef. The costs have been pretty steady throughout the spring and summer, and I don’t expect much to change through the fall. It may actually cost us a little less now because I’ll be sending Bambi away. No, we’re not butchering him yet.

       As I mentioned in my last post, my main concern has been about what I’ll do with Bambi once he gets too big to handle. It turns out he’s reached that point now. I can still get him where I want him to go – but just barely. His cooperation is important because I have to move him to a new grassy spot every day since we don’t have a fenced-in pasture.

       After a little spat we had last Friday, I decided it’s time to either leave him in the barn or send him to live in a pasture until November. We both came out of that little event unharmed, but every time I look at Bambi I only see this:


Bambi - 11 Months Old - Cuts of Beef


       If I had to leave him in the barn, we would be spending quite a bit on hay from now until November. Thankfully, the Hersheys (who gave us Bambi) have agreed to let him stay on their farm in a pasture with their pregnant heifers. This means our costs should go down a bit and our time commitment will go to zero. He hasn’t left our place yet, so in the meantime I’m keeping him at the silo and feeding him only hay and grain (no grass).

       There are several benefits to this arrangement – my safety not being the least of these. Bambi’s getting big enough that he can almost drag me around, so I don’t want to deal with moving him anymore. But now he’ll have a fresh and continuous water source, which means no more filling up buckets for me. It also won’t take the Hersheys any extra time to feed him because they already have to feed their heifers. Finally, I won’t have to worry about Bambi getting loose any more (which almost happened twice this past month).

       This is not to say that I couldn’t continue raising Bambi myself. As I said before, leaving him in the barn is an option. However, I doubt he’d like it much (not that it matters) and this option will cost less in time and money.

       With this new arrangement in place, I probably won’t have much to say about Bambi until he goes to the butcher. If you all are interested, I could keep doing updates once a month to track his growth and cover any changes in costs. If not, I’ll just do a final update after we send him off to be butchered. If you have any questions or comments, please leave them below. And make sure you sign up for free updates to Provident Planning if you don’t want to miss out on the last updates about Bambi!

       With the passing of the Credit CARD Act came a change in the format of credit card statements. These new statements are designed to help you see the most important aspects of your credit card – your interest rate(s), total fees paid, how long it will take to pay off your card, changes to interest rates, and changes to your account terms. I’ve noticed these changes in my credit card statements, and I like them. The information is easier to find than before, and I hope the payment information section will open peoples’ eyes to the dangers of the minimum payment.

       Five Cent Nickel, another personal finance blogger, created a nice graphical explanation of these changes using the Federal Reserve’s sample statement. I thought it might be useful if you’ve been wondering about these changes. The information that FCN provides also includes some of the other changes that came with the Credit CARD Act.



       Do you like these changes and the new format? Do you think it will help people pay off their credit cards faster, or will people who pay the minimum payment keep on ignoring their situation? Share your thoughts in the comments!

       In our last Investing Basics article, we talked about mutual funds. Today, we’ll discuss options and futures. Later in this series, we’ll look at short-term savings vehicles.

What Are Derivative Securities?

       Options and futures belong to a class of securities known as derivatives. These are securities whose value is derived from another underlying asset. In the case of options, the underlying asset is often a stock (thought it can be an index, exchange-traded fund, currency, or bonds). For futures, the underlying asset is usually a commodity (like grains, oilseeds, metals, petroleum, livestock, food items, or fiber) but can also include stock indexes, currencies, or bonds. In reality, options and futures can be based on nearly anything if there’s a market for them.

What Is an Option?

       Options are securities that give you the opportunity (or “option”…) to buy or sell the underlying security at a specific price over a set period of time. If the option lets you buy, it’s a “call option”. If it lets you sell, it’s a “put option”. Options that cover a long period of time are often called LEAPS (Long-term Equity AnticiPation Securities).

       Long-term options that let you buy a certain number of shares from a company are called “warrants”. These can be for 5, 10, or even 20 years. Although they are similar to regular options, they can only be issued by the company that issues the underlying stock. Regular options can be issued by anyone. Warrants are usually added to bonds when the issuing company needs to “sweeten the deal”.

What Is a Futures Contract?

       A futures contract is an obligation to deliver or accept a certain amount of the underlying asset at a specific price on a specific date. (Many people just call them “futures” but that’s just a shorter way of saying “futures contracts”.) Where an option gives you the choice to buy or sell, a futures contract is a commitment to buy or sell. So if you buy a pork bellies futures contract and hold it until the delivery date, you better have a place to store 40,000 pounds of future bacon!

       When used for hedging purposes, futures contracts are most often bought and sold by processors and manufactures or producers and farmers. Futures contracts allow these people and businesses to lock in their costs or income. Many of the farmers in my church use contracts to lock in the prices for their milk, corn, and soybeans. This helps them plan their income easier and protect against declining prices, but it also obligates them to deliver a specific amount regardless of how their cows or crops perform.

You Don’t Need to Know Much about Options and Futures

       Honestly, the average investor doesn’t need to know much about options and futures. There are some limited applications where they can be used to hedge (protect) an investment. But for the most part, people use them to speculate (in other words, gamble!). And speculation is not investing. However, it is useful to have a basic knowledge of options and futures so you can recognize the risks and the potential benefits. If you want to keep learning about investing, make sure you sign up for free updates to Provident Planning!

The Value of Quality Cookware

Corey —  July 13, 2010 — 13 Comments

Quality matters when it comes to cookware. But how do you know when you need to buy quality and when the cheap option will do? Or how do you know when the price reflects the actual quality of the item you’re buying?

I’m a big fan of Alton Brown and his series Good Eats. One of his major tenets is to avoid unitaskers as much as possible. So when my wife and I were registering for our wedding (and later buying the rest of the cookware we needed), we consulted Alton’s book Gear For Your Kitchen. We wanted to make the right decisions about which items we should have to avoid a cluttered kitchen. There’s no use in spending money or space on something you’ll hardly or never use.

But the other reason we consulted his book was to learn where quality counts and how to choose the right tool for the job. This doesn’t mean always buying the “best” tool. It just means buying (or making) the tool that will get the job done well at a reasonable price for the level of quality needed. So we pored over the book and made a list of what we felt were the items we should have in our kitchen (that I didn’t already have before we got married).

We found that expensive kitchen tools aren’t always the right tools. For some pots and pans, it’s important to have high quality materials (which do cost more). But for others, the cheap option is just fine.

Choosing the right tools matters because cooking can be much easier and much more fun if you’re using the right tools. If you hate cooking, it could be because you lack the right tools. Or it could be because you have too many tools and no space to cook!

Having quality cookware in just the right amount is key to good, enjoyable cooking. You’ll be able to prepare your food easier and possibly even tastier (as you continue to improve your own skills). It’s also the key to having a frugal kitchen. Having tools that you don’t use or don’t need (because another tool can do that job) is simply wasteful. So I’m touching on two ideas here – the value of quality cookware and the value of having just the right tools (and not every possible tool).

If you want to learn about having just the right tools, you really ought to buy Brown’s Gear For Your Kitchen or check it out from your local library. One of the most useful aspects of his book is helping you know how to decide if you really need a tool or not and which features you need and don’t need. He also discusses the quality aspect and let’s you know when it’s best to go more expensive on an item.

The Problem with Quality Cookware

The problem with quality cookware is that it is often expensive. It’s hard to buy inexpensive quality cookware. And that’s what keeps many people from buying the good stuff. I’m not saying you need to equip your kitchen with copper everything. But being frugal is not about being cheap. It’s about getting a good value for your money and making sure you get the best price you can at the same time.

It’s obvious that frustrating yourself with cheap, useless, or too much cookware will make for some miserable cooking. You know that quality cookware matters. The only part left is for you to figure out what you need and then how you’ll get it. (Again, I can’t recommend Gear For Your Kitchen enough for helping you figure out what you need.)

If you can’t afford quality cookware all at once, you’re better off picking a couple of the most useful items and building up your set of tools from there. In our kitchen, the 3-quart saucepan and the 5-quart Dutch oven get the most use by far. If I had to recommend just one pan and one pot to use, those would fit the bill. They can cover most of your cooking needs.