Making the Most of $6,000 per Semester

From my father, I receive $6,000 per semester for room/board/living expenses.  While staying at home, I owe him $4,500 per semester, leaving me with $1,500 free and clear to use as I wish for gas, eating with friends, the occasional grocery run, clothes, etc.  I also work a part-time job (really two jobs, each half-part-time), making approximately $1,300/month during the school year.

The current question is how to best utilize this money?  I receive the $6,000 up front at the beginning of the semester, but I pay my dad on a monthly basis.  So, the lump sum just sits in my checking account doing nothing: I can do better.  I have two investment accounts, one Roth IRA and another personal trading account.  Putting at least a portion of the lump sum into one of these accounts will allow for the possibilities of making some additional income and bolstering my savings.  The question is now: how much do I put into each account (checking, Roth, personal trading)?  (Q1).  Before I can answer this, I need to answer the question: how much do I need access to on a monthly basis?  (Q2).  And so, let’s dive into my monthly expenses.

The $150 Buffer accounts for any anomalies (rising gas prices, clothes, speeding tickets ☺).  

All righty, analyzing the data from my rough Income and Expense tables, I can now answer Q2: I need access to $1,680 per month.  If I make $1,300 per month, I need at least an additional $380 per month from the $6,000.  That’s a total of $1,520 from the original $6,000.  Now we can start answering question Q1.  If the money is not in my checking account, it’ll be in an investment account and, thus, essentially in the stock market.  As many know, the stock market can be quite the volatile frontier, especially when dealing with options.  So, just in-case of the improbable – but not impossible – chance I lose everything, I’d like to keep at least $1,000 cash in a checking account at all times.  That leaves $5,000 to divvy up between the Roth IRA and my personal trading account (PTA).  Here are the benefits and drawbacks of each account.  The Roth IRA is capped at $6,000 in contributions per year and taking money out isn’t possible right now.  However, the awesome benefit of Roth is that you don’t pay taxes on the profits.  The PTA has unlimited contributions and is pretty much as liquid as a bank account.  However, you have to pay taxes on the gains.  If the Roth weren’t so illiquid, it’d be a no-brainer to dump everything there.  But, one of my goals happens to consist of purchasing a car by the end of the year and I plan on using some of my investments to pay for it, hence the PTA.  Another benefit of putting money in the PTA is, again, the liquidity; if, for some reason, I can’t make as many hours at work one month, I can pull from the PTA if absolutely necessary.

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Okay, I’ve thought about it some more off-paper, and I think a good split will be $2,000 to the Roth IRA and $3,000 to the PTA.  My reasoning:

1. My original budget that I planned in January had me contributing $450/month to the Roth IRA during the Spring ’21 semester.  That totals to $1,800 (~$2,000) for the semester.

2. Putting $2,000 in the Roth IRA now, as opposed to progressively, allows for a greater utilization of the power of compound interest.

3. I have not been trading with the PTA yet as most trades would end up being pretty close to 100% of the funds in this account.  The added $3,000 would get me to a balance with which I’m comfortable trading.  (If you’re curious, I’m most comfortable putting 8-11% (pretty much 10%) of my funds in an account towards each trade.  In the case of the PTA, I’ll be slightly uncomfortable, but still willing to risk up to 50% of the account on each transaction.)

4. Putting the majority of the money in the more liquid PTA permits some peace of mind in the off-case school becomes overwhelming and my hours at work suffer

Awesome!  Now, time to make the transfers!