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Savings vs Investing
- Thread starter Show-me
- Start date
imported post
As government workers we have a huge perk that significantly affects my personal savings/investment strategy - job security!
I am one of those who does not keep much cash around. For most folks, the biggest financial emergency they need to plan for is getting laid off. For most of us, that risk is very close to 0%. To me, that means it makes sense to keep less cash on hand and put more emphasis on investing. Of course, I like to have some cash, around 2 months salary, for other emergencies. But for me more than that just isn't in my best interest.
As government workers we have a huge perk that significantly affects my personal savings/investment strategy - job security!
I am one of those who does not keep much cash around. For most folks, the biggest financial emergency they need to plan for is getting laid off. For most of us, that risk is very close to 0%. To me, that means it makes sense to keep less cash on hand and put more emphasis on investing. Of course, I like to have some cash, around 2 months salary, for other emergencies. But for me more than that just isn't in my best interest.
Mike
Active member
imported post
I just can't give up on this argument, show-me. I'm gonna convince you come hell or high water (or higher oil prices)!
For emergency savings, I will continue counting all liquid assets I have on hand - meaning what's in my checking account+money market account+Roth IRA (since the invested amount can be withdrawn penalty free at anytime). The money in the Roth is certainly more volatile than the other two, but it doesn't change the fact I have that money to tap into whenever I need it. Ironically, the Roth is more liquid than a CD (if you withdraw these prematurely, you are hit with penalties - costing you your earned interest at the minimum). So with that said, I have 3-4 months' available to me. :^
This is from the startribune's "Ka-ching" peer review section this week (reader questions answered by CFPs - I thought you might like it
):
Q I know I should be saving but don't know where the money will come from. It seems like I run paycheck to paycheck month after month.
Alicia, St. Paul
"If you are committed to saving, remember to pay yourself first.
Saving on a money-crunched budget might seem impossible. A good tool to help is Quicken, a software program that's a great way to track how you spend your money.
Once you know what categories your money is going toward, you can determine what actions might be necessary. Perhaps it's one fewer latté a week, or changing a night out with friends to a night in with friends.
You must evaluate your priorities and determine which is more important to you: a short-term joy or saving for something a bit longer-term.
Also, remember that saving through a 401(k) or similar plan provides tax-deferred savings. This means if you invest $1, it's reducing your cash flow by only 70 or 80 cents because of the tax savings."
Kristin Hannemann, CFP (30)
I just can't give up on this argument, show-me. I'm gonna convince you come hell or high water (or higher oil prices)!
For emergency savings, I will continue counting all liquid assets I have on hand - meaning what's in my checking account+money market account+Roth IRA (since the invested amount can be withdrawn penalty free at anytime). The money in the Roth is certainly more volatile than the other two, but it doesn't change the fact I have that money to tap into whenever I need it. Ironically, the Roth is more liquid than a CD (if you withdraw these prematurely, you are hit with penalties - costing you your earned interest at the minimum). So with that said, I have 3-4 months' available to me. :^
This is from the startribune's "Ka-ching" peer review section this week (reader questions answered by CFPs - I thought you might like it
):Q I know I should be saving but don't know where the money will come from. It seems like I run paycheck to paycheck month after month.
Alicia, St. Paul
"If you are committed to saving, remember to pay yourself first.
Saving on a money-crunched budget might seem impossible. A good tool to help is Quicken, a software program that's a great way to track how you spend your money.
Once you know what categories your money is going toward, you can determine what actions might be necessary. Perhaps it's one fewer latté a week, or changing a night out with friends to a night in with friends.
You must evaluate your priorities and determine which is more important to you: a short-term joy or saving for something a bit longer-term.
Also, remember that saving through a 401(k) or similar plan provides tax-deferred savings. This means if you invest $1, it's reducing your cash flow by only 70 or 80 cents because of the tax savings."
Kristin Hannemann, CFP (30)
imported post
Mike---
I've been using a system that has worked well for the past year.
Here goes.
What we net in our paychecks, we tithe 10% to our church first.
Then we put 20% in a savings account.
The rest goes to bills. We're fortunate enough to not include TSP or our deferred compensation retirement plans in this as they are deducted before we get our net checks. After awhile, you don't miss the money. When I have a decent sum in the savings account, I can use that money to invest in my portfolio, fix the car etc. I always keep a minimum amount in the savings account.
Mike---
I've been using a system that has worked well for the past year.
Here goes.
What we net in our paychecks, we tithe 10% to our church first.
Then we put 20% in a savings account.
The rest goes to bills. We're fortunate enough to not include TSP or our deferred compensation retirement plans in this as they are deducted before we get our net checks. After awhile, you don't miss the money. When I have a decent sum in the savings account, I can use that money to invest in my portfolio, fix the car etc. I always keep a minimum amount in the savings account.
Mike
Active member
imported post
I have two weeks' pay in my money market account. I don't want to put that much more in there - for one thing, I don't need that much sitting in a money market account earning the paltry 3% return. Secondly, the potential "emergencies" are few and far between. I'm young, so medical emergencies are highly unlikely (note: I have an HSA, and over $700 per year is diverted into that pre-tax out of my health insurance premium). My car is only two years old and has had no problems whatsoever - plus I have it regularly maintained as the manual suggests. I don't have any children or a spouse, so that further reduces the likelihood of having to deal with something.
I suppose it also helps that I'm rarely in a situation where I'm spending all of my paycheck. There always seems to be something left over - which is why I've already maxed my Roth contribution for the year. After that, I funneled some into my brokerage account, and from here 'til December, I'll probably just split the excess 50/50 between the money market / brokerage until my MM hits 4 weeks' pay, at which point everything will go to the brokerage account.
I have two weeks' pay in my money market account. I don't want to put that much more in there - for one thing, I don't need that much sitting in a money market account earning the paltry 3% return. Secondly, the potential "emergencies" are few and far between. I'm young, so medical emergencies are highly unlikely (note: I have an HSA, and over $700 per year is diverted into that pre-tax out of my health insurance premium). My car is only two years old and has had no problems whatsoever - plus I have it regularly maintained as the manual suggests. I don't have any children or a spouse, so that further reduces the likelihood of having to deal with something.
I suppose it also helps that I'm rarely in a situation where I'm spending all of my paycheck. There always seems to be something left over - which is why I've already maxed my Roth contribution for the year. After that, I funneled some into my brokerage account, and from here 'til December, I'll probably just split the excess 50/50 between the money market / brokerage until my MM hits 4 weeks' pay, at which point everything will go to the brokerage account.
Birchtree
Well-known member
imported post
I'm so lucky not to have to worry about any of this emergency money stuff - my wife keeps all the money - if I help out around the house I will get my well earned weekly allowance that includes gas money. Her plan is to keep me working as long as she has to work. And at times she has acted as my personal banker - how great is that!
I'm so lucky not to have to worry about any of this emergency money stuff - my wife keeps all the money - if I help out around the house I will get my well earned weekly allowance that includes gas money. Her plan is to keep me working as long as she has to work. And at times she has acted as my personal banker - how great is that!
Show-me
Well-known member
imported post
Mike wrote:
Good! Keep it up! You can teach old dogs new tricks. The main thing I wanted to do was shed light on the subject for our fellow board members.
I don't have time now to respond to all of your points, but I will later on.
Good luck all!
Mike wrote:
Mike,I just can't give up on this argument, show-me. I'm gonna convince you come hell or high water (or higher oil prices)!
Good! Keep it up! You can teach old dogs new tricks. The main thing I wanted to do was shed light on the subject for our fellow board members.
I don't have time now to respond to all of your points, but I will later on.
Good luck all!
Show-me
Well-known member
imported post
Mike,
After going back and reading our posts it is obvious that our difference is only in the risk and liquidity of the “money put aside”. For me, equity is not an option because I do not want a “note” hanging over me in the now or later if a dependent or I am injured or ill. I wouldn’t want to buy a new home entertainment system with it or use it for later investments either. Taking the principle out of my Roth IRA would be a good option. That I knew of but did not give much thought until now. I wouldn’t like to use it but it is an option in a grave emergency. Socialist Security we probably will never see eye to eye on so let’s go for the positive.
The common ground we thankfully share is that only “we” can make the conscious decision to “put money aside” for later use. Whether that use is for “the purpose of subsequent investment or for some other purpose, such as accumulating sufficient funds for future consumption spending on big ticket items, maintaining an emergency reserve against the possibility of unpredicted consumption expenses, providing for post-retirement consumption spending, or even for the perverse psychological pleasures of hoarding in the miserly tradition of Silas Marner.”
So it is probably safe to say that you, I, and a very, very few others are screwing up the curve up for the rest of society. Damn the overachievers!:shock::^
Mike,
After going back and reading our posts it is obvious that our difference is only in the risk and liquidity of the “money put aside”. For me, equity is not an option because I do not want a “note” hanging over me in the now or later if a dependent or I am injured or ill. I wouldn’t want to buy a new home entertainment system with it or use it for later investments either. Taking the principle out of my Roth IRA would be a good option. That I knew of but did not give much thought until now. I wouldn’t like to use it but it is an option in a grave emergency. Socialist Security we probably will never see eye to eye on so let’s go for the positive.
The common ground we thankfully share is that only “we” can make the conscious decision to “put money aside” for later use. Whether that use is for “the purpose of subsequent investment or for some other purpose, such as accumulating sufficient funds for future consumption spending on big ticket items, maintaining an emergency reserve against the possibility of unpredicted consumption expenses, providing for post-retirement consumption spending, or even for the perverse psychological pleasures of hoarding in the miserly tradition of Silas Marner.”
So it is probably safe to say that you, I, and a very, very few others are screwing up the curve up for the rest of society. Damn the overachievers!:shock::^
imported post
Guys-
Let me suggest a place for your "liquid money". It is called:
http://www.emigrantdirect.com/ It is FDIC insured, been around as a free standing bank since 1850. You just link it to your current bank account and transfer money to and fro. There are no fees, minimums, nothing. Right now they are paying 3.5%, and that is up from 2.6% 6 months ago.
I've been with them for 6 months and before that I was with ING Direct (for one year, too). I switched because Emigrant was paying a higher return. As an example, I don't escrow my property taxes or home insurance. Every month I just transfer the prorated amount into this account and draw interest. I know it's not a lot, but 3.5% is the best I've seen for "liquid". I hope this helps.
Guys-
Let me suggest a place for your "liquid money". It is called:
http://www.emigrantdirect.com/ It is FDIC insured, been around as a free standing bank since 1850. You just link it to your current bank account and transfer money to and fro. There are no fees, minimums, nothing. Right now they are paying 3.5%, and that is up from 2.6% 6 months ago.
I've been with them for 6 months and before that I was with ING Direct (for one year, too). I switched because Emigrant was paying a higher return. As an example, I don't escrow my property taxes or home insurance. Every month I just transfer the prorated amount into this account and draw interest. I know it's not a lot, but 3.5% is the best I've seen for "liquid". I hope this helps.
Spaf
Honorary Hall of Fame Member
imported post
How much for an emergency fund?
At todays inflation about 10K min. In very liquid assets. MM, savings, etc.
Aslan had a good place at 3.5. Also see http://www.capitalone.com Savings at 3.45, plus CDs etc.
TSP is a tax deferred retirement savings plan. I chose to also go with a tax paid savings plan of my own. At one time it was with a mutual fund company, but have since switched to an online broker. So my retirement savings went 50/50.
This has worked out quite well.
If the TSP L funds work out. I may not roll the money into a traditional IRA. Will have to wait and see.
TSP is a good thing. I just don't like having all my funds there.
When you consider emergencies. Remember as you get older they can come in series. And, if you have kids, what about them? If one of them looses a job! Guess who they will call!
Rgds! Spaf
Edit: It also depends on the number of kids!!!:u
How much for an emergency fund?
At todays inflation about 10K min. In very liquid assets. MM, savings, etc.
Aslan had a good place at 3.5. Also see http://www.capitalone.com Savings at 3.45, plus CDs etc.
TSP is a tax deferred retirement savings plan. I chose to also go with a tax paid savings plan of my own. At one time it was with a mutual fund company, but have since switched to an online broker. So my retirement savings went 50/50.
This has worked out quite well.
If the TSP L funds work out. I may not roll the money into a traditional IRA. Will have to wait and see.
TSP is a good thing. I just don't like having all my funds there.
When you consider emergencies. Remember as you get older they can come in series. And, if you have kids, what about them? If one of them looses a job! Guess who they will call!
Rgds!
SpafEdit: It also depends on the number of kids!!!:u
imported post
neirbod wrote:
Mike wrote:
Exactly!
Level 1 reserves: MMA, 3.2%, not more than $2K, have debit card and checkbook
Level 2 reserves: Scottrade, have debit card and checkbook
Level 3 reserves: Roth contributions...if I need this, I gots big prollems.
Credit cards are pretty liquid...charge the emergency, and I have ~25 days to liquify my assets to pay off the cards.
neirbod wrote:
I used to think that until, several years ago,another government worker couldn't fix my pay problems...went without pay for one month and for three months, I was only getting every other paycheck. A lesson learned the hard way.
Mike wrote:
Exactly!
Level 1 reserves: MMA, 3.2%, not more than $2K, have debit card and checkbook
Level 2 reserves: Scottrade, have debit card and checkbook
Level 3 reserves: Roth contributions...if I need this, I gots big prollems.
Credit cards are pretty liquid...charge the emergency, and I have ~25 days to liquify my assets to pay off the cards.
