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MONEY TALKS: Why I’m saving and investing in a money market fund

Wednesday April 3 2019

I began to consistently save my excess cash and I was thrilled to see the account grow.

I began to consistently save my excess cash and I was thrilled to see the account grow. PHOTO | FILE | NATION MEDIA GROUP 

BETT KINYATTI
By BETT KINYATTI
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I have a money market fund account with an insurance company. I opened the account last year July.

I remember telling GB I’d open it, and he asked, “Sweetheart, what’s this account going to be for?”

And I told him, “I honestly don’t know. But I have a feeling I should have one.”

So I carried on as I’d planned. I went to the company's offices, got my paperwork in order – ID, PIN and the usual requirements – then emailed them to wait for my account number. They emailed it back the next day.

I sent Sh2,500 to activate the account and I was in business.

That was July 2018. We’re now in April – I can tell you with confidence what the account is for. (And why you should consider having one yourself.)

So here’s the thing: I had a couple of side-hustles last year that returned some good income.

It was excess money. Money I didn’t need right away but which I knew I’d need someday soon, either for an emergency or to reinvest in another project.

I didn’t want to put the money in my Sacco because that’d mean it was inaccessible to me; I would only access it through a loan. Borrowing my own money is one of the biggest ironies of a Sacco. And, before I’d get my own money through this loan, there’d be the lengthy and painful process of making the loan application. (To tell you the truth, filing that paperwork gives me the headache of all headaches. Especially searching for guarantors. It’s utterly off-putting.)

CONSIDERING MY OPTIONS

I didn’t want to leave the money in my current account because I’d have spent it on stuff I didn’t need. Like maybe more shoes and more dresses for my wardrobe, more shades of lipstick, more cutlery for my kitchen...You know how these things go.

This money was too hard-earned to squander.

Besides, current accounts are a cash conduit. They’re like a flowing river. Cash moves in and out, en route to its final destination in the sea.

I didn’t want to put it in my savings account with my other bank because – again – it would be easily accessible to me, either through mobile banking, on M-Pesa, or through the ATM.

I considered prepaying my insurance policies and sleeping easy for the rest of the year. That, however, would have been an opportunity lost to earn some income on the money; either through interest or through reinvestment.

I didn’t want to invest it in an asset – like the stock market or a physical asset – because I wanted to be liquid. I wanted to have cash not too far away for when I needed it.

BENEFITS OF THE MONEY MARKET FUND

I shopped around and a money market fund checked all the boxes for a short-term investment vehicle, because of these simple reasons:

a) I’d earn interest on cash invested (though not much and not at the beginning. I’d make more as my savings grew. I learned later that the interest is compounded as time goes by. That means it has a time value attached to it.)

b) I’d be liquid. I was allowed one free withdrawal every month. Any other withdrawal within the month would cost Sh500.

c) I’d sleep better at night knowing I was covered should there be an emergency.

d) I’d also sleep much better knowing I could finance a project that didn’t need too much cash on hand.

e) My sticky fingers would be away from my cash. I’m naturally disciplined but I’m also human. I give in to my temptations sometimes. As anyone does. Then I end up squandering money and feel remorseful after.

CONSISTENT SAVING

Anyway, I began to consistently save my excess cash starting that July. I even sent more money to this account than to my bank savings account.

I majorly have the money personality of a hoarder, so it was thrilling to see the account grow. It even pushed me to work harder and make more money.

The insurance company emailed me statements on the 5th of every month. They’re password protected. I made sure to forward them to GB.

I was earning an interest on the cash invested. As I mentioned, it wasn’t much but it was still an income.

I also planned around the money. One time I had a personal emergency that needed immediate financing. I needed Sh20,000. I emailed my withdrawal request at 9am, and by 4pm that afternoon, the cash was in my account.

Another day it was Sh106,000. I emailed my request in the morning as well, and got the money the next morning, after 24 hours. Still, the efficiency is something to write home about.

I also had some non-emergencies. One time I needed to settle a mobile app loan with Tala (long story, ha-ha, read more about it here.) I made the request three days before my deadline for payment. The cash came through in two days.

As I mentioned, I’m not charged anything when I make one withdrawal a month.

What I’m charged for, though, is interest earned on my balance. The government takes 15% of it as withholding tax.

EARNING FROM THE FUND

On another day, another story, I’ll show you how you’ll earn interest from your savings in the fund.

I’ll also show you how the ‘daily yield’ and ‘effective annual rate’ are applied. And what they mean for you.

I’ll use my personal statement from my money market fund account to show you what I mean.

In the meantime, this is how I began investing, and my investment and earnings have been growing.

Period

Balance for principal invested

(Sh.)

Interest earned

(Sh.)

Aug-18

         17,500

          13.51

Sep-18

         80,000

       376.86

Oct-18

      115,500

    1,014.20

***

Do you have questions for the writer? E-mail: [email protected]

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