Question

You have excess cash. You anticipate that you will need to have 6 months’ worth of expense covered, in case of emergencies. You want to make sure that you can have access to your cash, but also gain interest as well, throughout the 6 months. Your expenses are $2300 per month. You have $20,000 in cash. You want to put it in various accounts or funds for: 1 month, 3 months, 6 months. The remaining amounts you want to have put into something that will earn you the highest interest rates. How would you allocate or tier 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

Suppose all the expenses are payable at the end of the every month.

Hance you need $ 2300 at the end of every month. There are the type of account you have i.e. 1 month 3 month and 6 month .

So should invest $4600 in 1month account that should be t.bills, remaining $ 15400 out of which $6900 for third, fourth and fifth month experience invest in 3month account that should be MMDA and CDs etc.

And remaining amount $ 8500 invest in 6 month account that should be mutual funds etc.