Optimizing short-term funding needs

Actually, besides the savings, there are some other product to deposit your money for short-term needs. There are deposits, and money market mutual funds. However, each product has different characteristics. Thus, the selection of the products must be tailored to the needs of your financial planning.

There are three things that must be understood, the term compliance with needs, liquidity, and its potential return.

Distinguish between routine and non-routine needs

In financial planning, short-term funding needs are less than one year. That means, these funds should be placed on products that have high liquidity. That is, the product allows the owner to disburse funds with ease, whenever he needed.

However, we have to adjust every product that we choose with our needs. In fact, your short-term needs can still be divided into routine needs and the needs that are not routine.

Routine needs consist of expenditure items that are routinely issued every month. Usually, even though it is not always the same amount, it is still can be estimated and relatively unchanged over time. For examples: monthly household expenditure, payment of electricity bills, phone bills and internet, as well as car repair.
Meanwhile, non-routine monthly needs, such as home renovation, holiday fund, or property tax payments.

Well, after we know the various types of our short-term needs, we can just adjust it to a suitable investment product. In terms of liquidity, no doubt, the savings is the most liquid product among any other type of short-term investment product.

However, this high liquidity factor can also be a drawback, especially for those who are less able to control his spending. Moreover, in terms of return, the interest rate of a saving product is very small.

So, saving is suitable to store your money for short-term needs which are routines and emergency funds. But remember, the emergency funds account must be separated from the account for routine household needs.

Cannot expect a high return

Meanwhile, deposits and money market mutual funds could be utilized for the needs of under one year of non-routine monthly.

In terms of liquidity, money market mutual funds can indeed be taken at any time. However, the disbursement is troublesome because of the administration process usually takes time. While deposits cannot be liquidated prior to maturity.

In terms of returns, deposits and money market mutual funds can offer higher returns than savings. Historically, these two products produce a return above 5% per year. So, slightly above the inflation rate (inflation rate assumed 4%).

However, investors cannot expect a high return for the investment of less than a year. Short-term investments are not for speculation and not expect for high interest.

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