Question

1. You have excess cash. You anticipate that you will need to have 12 months’ worth of expenses covered. You want to make sure that you can have access to your cash, but also gain interest as well, throughout the 12 months. Your expenses are $2300 per month. You have $25,000 in cash. You want to put it in various accounts or funds for: 1 month, 3 months, 6 months, and 12 month. The remaining amounts you want to have put into something that will earn you the highest interest rates. How would you allocate them in various accounts (checking, NOW, savings, MMDA, CDs, T-Bills, Mutual funds, brokerage accounts, asset management accounts), in order to manage your liquidity (have access to your money and still gain interest)?

Answer 1

I have an excess cash of $25,000 and my monthly expenses projected to be $ 2,300, which means I should have in my checkings account $ 4,600 in form of liquid cash, so that will not have any hindrance to meet with payments. Now with the balance of $ 20,400, I prefer to invest next one months saving (i.e.) $ 2,300 in Savings account, as it will yield lesser interest, but there is no risk of losing money. Now with the balance of 9 months, I chose to invest next 2 months savings (i.e.) $ 4,600 in MMDA account in bank, where it is more or less equal to savings account but yield more interest with little risk involved with it. By now, total 5 months savings have been done with little interest rate and cash available in liquid form to withdraw anytime. Now the balance of $ 13,500 will be invested equally with mutual funds and brokerage accounts for period of 6-9 months, in which I can yield higher rate of interest over a period of time. This would be my investment plan for liquid cash and to gain interest within short period of time.