Should bond funds be a Budget or Tracking account?
I was wondering how people handle medium term savings such as bond funds. I'd like to start saving for a house down payment, but I don't expect to purchase a house within 5 years.
I was thinking of parking the money in the Vanguard Total Bond Market Index Fund, and I don't feel too bad about converting back to cash if some emergency expense comes up.
I've read that we should give every dollar a job. So I was wondering should I leave this as a Budget account and put those dollars in the "Down Payment" category? Or does it make more sense to log it as an expense into a tracking account, then have a large amount of income the month I make the down payment?
Thanks for your thoughts!
The issue with having it in your budget is the volatility, albeit not very significant with a bond fund... although TBM is down a few percent. You give the dollar a job, and the next day, the dollar may be gone.
In this case, I'd be inclined to send it off budget, and then bring it back on budget using the same category, so that way you can later ignore it (filter it out) in your reports. "Down Payment Savings" for the category. And then when you actually use it to buy a house, you can assign it to a different category for the actual spending.
I'll go ahead and make it an investment account, and treat contributions in my budget just like any other bill or loan payment.
I was reading about tax-exempt bonds yesterday too. I still have more to learn about them before knowing when the tax advantages outweigh the lower yield!
Thanks for the reply!