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Old 09-09-2017, 01:02 PM
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Default Managing saving for different things

Hey all!

I'm just getting into using investments for savings. I currently have two mutual funds from Vanguard and I'm trying to get as much of my savings out of my savings account (aside from my rainy day fund) so that it actually gains interest. (I think I averaged about $0.15/month from BofA last year).

My question is this: How do you manage saving for different things? For example, retirement, new house, car, etc.

Do you have different allocations for different things? Like, a more conservative investment for money set aside for a new car (assuming you'll need it in 3-5 years) and a more aggressive investment for retirement? Do you simply keep track of it in a book/spreadsheet?

I hope my question makes sense... Happy to clarify if it doesn't.
Thanks!
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Old 09-09-2017, 02:23 PM
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You should be very careful about investing your savings.

Having said that... the rule of thumb is that the father away the goal, the more risky the investment.

For us (and most people, I presume), retirement savings is handled separately from other types of savings, since it's usually handled by 401(k) and automatic IRA contributions, and in more aggressive/risky investments.

For everything else, I keep the money in a combination of a single online bank savings account at Ally Bank and high yield bond fund (the thought being that the high yield would mitigate loss of capital from rising interest rates) at Fidelity (for convenience).

Except for retirement, all savings money is dumped into those two accounts. The goals are tracked in a spreadsheet with one column per goal. On any given day, the "horizontal sum" of those goals should match the value in the bank account + junk bond fund.

Some of the columns in that spreadsheet are:
  • Birthday/Christmas Club
  • Medical
  • Car insurance (semi-annual)
  • Other regular non-monthly expenses
  • Wind insurance
  • DW college tuition
  • Vacation
  • Car fund
  • Home/appliance repair
  • Emergency travel
  • Income tax
  • Property tax
  • Job loss
  • Investment gains/losses (to reconcile the spreadsheet with the reality)

EDIT: at the end of every month, I transfer a set amount to the bank and bond fund which equals how much I add to each spreadsheet column. I also forecast when and how much that known withdraws will be, to ensure that we save enough.
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Old 09-09-2017, 04:13 PM
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I think this is a great question and certainly something I'm sure a lot of people struggle with.

In the big picture, money should be split into at least 2 piles: retirement and everything else. Retirement is a very long term goal that requires careful planning and has special investment vehicles available to you solely for that purpose (IRA, Roth, 401k, 403b, etc.).

The quick overview for retirement is that you should be saving at least 15% of your gross annual income. If your employer offers a plan with a company match, invest at least enough into that to get the full matching funds because that is essentially free money that you don't want to pass up. Beyond that, a Roth IRA, if you qualify, is usually the best next step. Retirement is typically where you will be the most aggressive in your investment choices depending on your age. The closer to retirement you get, the more conservative you want to tilt the portfolio.

For everything else - home, car, vacation - you typically want to keep the money in conservative places because those are short term goals and you don't want to lose principal.

I wouldn't keep anything in a traditional bank account. That BOA account is probably paying 0.01%. Move all of that into an online account at a place like Ally which is currently paying 1.2%. That's 120 times as much as you are earning!

As for how to track it, that really depends on you and how your brain works. Personally, I don't need to keep separate accounts or a complex spreadsheet because I'm able to adequately keep track of everything in my head but not everyone can do that. Some need that itemized breakdown.
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Old 09-09-2017, 09:27 PM
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Quote:
Originally Posted by disneysteve View Post
[ ... ]

In the big picture, money should be split into at least 2 piles: retirement and everything else. Retirement is a very long term goal that requires careful planning and has special investment vehicles available to you solely for that purpose (IRA, Roth, 401k, 403b, etc.).

[ ... ]

For everything else - home, car, vacation - you typically want to keep the money in conservative places because those are short term goals and you don't want to lose principal.

[ ... ]

So how do mutual funds and other investments (such as a stock portfolio) fit into this? Are those just other vehicles that are typically used for retirement purposes?
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Old 09-09-2017, 10:19 PM
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Originally Posted by torea View Post
So how do mutual funds and other investments (such as a stock portfolio) fit into this?
The term "mutual fund" is as broad as the word "car", and that encompasses everything from top fuel dragster to the Ford Falcon driven by the proverbial little old lady from Pasadena. (Maybe you're too young for that reference).

Stock portfolios fit nowhere in "savings". They're risky (can drop by 50% and stay there for a few years) strictly for investments. (This wasn't true when AT&T was an "orphans and widows" stock, but that was 40 years ago...)

Quote:
Are those just other vehicles that are typically used for retirement purposes?
I own some very stable mutual funds, and some volatile mutual funds. And I don't own an explicit stock portfolio (ones that I picked for myself) because I don't have the time to research them properly.
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Old 09-10-2017, 10:57 AM
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torea, wonderful that you have taken the initial steps towards managing your money by having a 'rainy day' fund [often called Emergency Fund [EF] and investing in Vanguard MF. [what did you choose?] I'm certain you will find it remarkably easy to give every dollar a 'job.' Perhaps review 2016 spending to allocate annual sums for irregular expenses like auto maintenance/tags, holiday/Christmas/gifts, vacation/travel etc.

Whatever the 'spend' category, divide by annual paydays and transfer that sum to a linked 'saving' a/c. I notice some SA participants choose to use several [free] electronic accounts [Capital One 360] for example. Depending on your Personal Risk Tolerance you can choose to buy a no cost/low cost Exchange Traded Fund [ETF] or MF on the understanding that investing is a roller coaster. If unit price goes up you will profit, if unit price drops you will be scrambling to fund those irregular expenses.

Personally, I challenge myself to find ways to reduce weekly expenses and have a high Risk Tolerance, choosing ETFs and MFs for annual goals. I got greedy combined with disappointment with saving interest and put auto maintenance, operation and irregular expense into a Dividend ETF. I'm about to yank it out because the Risk Factor has exceeded my tolerance.
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Old 09-10-2017, 12:39 PM
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Your question is right up my ally. For years, I've had one dedicated checking account (joint) that is solely used for mortgage, taxes, car payments, savings, college and other big ticket items. With this account I have a hand written spread sheet breaking everything down.

From each paycheck of ours, a certain amount of money is put into each category, such as $150. to taxes, $500. into mortgage, etc... Every big ticket bill I have is saved for. When my property taxes come due or when I need money for a car purchase I always have the money saved or set aside.

For years my wife always laughed at the way I saved and had everything organized into separate "funds". Because of this she's now able to quit her job early and enjoy an early retirement like myself. She's no longer laughing.

The secret to all this is to make those individual payments religiously. You'd be surprised at how easy it is to save for large ticket items if you put just a small amount aside from each paycheck.

ps: I'm also one of the few that still balances my checking accounts each month!
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Old 09-10-2017, 02:40 PM
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Originally Posted by Drake3287 View Post
The secret to all this is to make those individual payments religiously. You'd be surprised at how easy it is to save for large ticket items if you put just a small amount aside from each paycheck.
"The Internet" makes this trivially easy. Log into your bank website and tell it "move $xxxx dollars from account 1234 into account 6789 on the last day of the month"

Quote:
ps: I'm also one of the few that still balances my checking accounts each month!
After decades of not doing it, I started doing it a few years ago, but using a spreadsheet. (Our use of checks has dropped like a stone, and that makes it pretty easy.)
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Old 09-11-2017, 11:27 AM
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Agree about the checks. I only write 2 per year, both for property taxes. What I do is charge EVERYTHING I buy or pay for on a reward credit card. In turn, instead of putting down a check number in the register, I write down "Visa" along with the amount as if it was a check.

At the end of each month I simply pay the credit card bill in full from money that has already been put aside. I literally get a couple thousand dollars back each year in cash rewards by doing this.
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Old 09-11-2017, 11:36 AM
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I literally get a couple thousand dollars back each year in cash rewards by doing this.
To get that much money back, you must run your business through your personal card.
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Old 09-11-2017, 12:01 PM
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Originally Posted by Nutria View Post
To get that much money back, you must run your business through your personal card.
That all depends on how much he spends. We charge about $50,000/year to our cards and that's all personal. So at 1%, we'd get back $500. But we always take advantage of the 5% deals with Chase and Discover so our average reward is more than 1%. I've never sat down and calculated it but at 2 or 3%, we'd earn $1,000 or $1,500.
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Old 09-12-2017, 10:13 PM
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I meant to comment here previously, but it's been a busy week... I keep our money broken up by timeframe.

- Money needed for immediate use (>1 yr timeframe like EF, home repair/taxes/insurance fund, and some general slush savings) stays in online savings accounts & I-Bonds.
- Lower priority money for the short-term (1-5 years, like car replacement, home improvement, travel, etc.) goes into a tax-free muni bond fund (VWIUX) in a taxable investment account. It returns 3-4x more than the savings accounts, but is still comfortably reliable & consistent with fairly little volatility.
- Mid-term money (5-20 years, like for the next home downpayment) is invested in stock index funds (VTSAX, VTIAX) in the same taxable investment account.
- Long-term money (20+ years) is invested in 401k/IRA/529 accounts, using age-based asset allocations of stock & bond index funds.

I used to be more conservative, keeping immediate and short-term money all in savings accounts, but at one point I ended up with over $40k in savings accounts (in excess of my $30k EF), which seemed excessive to me. So I broadened the scope a little and accepted a bit more risk with the munis.

As mentioned, automated online transfers makes saving money SO MUCH EASIER!! All of the savings/investment money gets automatically pulled from my checking account at every payday, gets divvied into the desired accounts, then we just live on the rest.

I will admit that keeping everything physically separated (vs. all in one pot) is more complicated, but it makes managing our financial goals alot easier. One thing that did make things easier was consolidating multiple individual savings accounts for all of the short-term needs into the single muni fund.
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Old 09-13-2017, 05:36 AM
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Quote:
Originally Posted by kork13 View Post
Money needed for immediate use (>1 yr timeframe like EF, home repair/taxes/insurance fund, and some general slush savings) stays in online savings accounts & I-Bonds.
Two comments here:

1. I assume that should say <1 year (less than 1 year)

2. One caveat with I bonds is that you must hold them for a minimum of 1 year before you can redeem them and if you redeem them in less than 5 years, you lose the last 3 months worth of interest. So don't buy an I bond today as your EF because if you need it 3 or 6 or 9 months from now, you're going to be out of luck.
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Old 09-13-2017, 08:36 AM
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Quote:
Originally Posted by disneysteve View Post
Two comments here:

1. I assume that should say <1 year (less than 1 year)

2. One caveat with I bonds is that you must hold them for a minimum of 1 year before you can redeem them and if you redeem them in less than 5 years, you lose the last 3 months worth of interest. So don't buy an I bond today as your EF because if you need it 3 or 6 or 9 months from now, you're going to be out of luck.
True. These are long-held I-Bonds, which I've mostly had for 5-7 years. Also of note, they only serve as my EF -- I wouldn't tap them just to pay my property taxes, for example.
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Old 09-13-2017, 08:44 AM
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True. These are long-held I-Bonds, which I've mostly had for 5-7 years.
We have a big chunk of our EF in I bonds also. We've had them for years and are well past the 5-year point so if we need them, we can cash them out with no penalty at this point.
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Old 09-13-2017, 10:57 AM
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We have a big chunk of our EF in I bonds also. We've had them for years and are well past the 5-year point so if we need them, we can cash them out with no penalty at this point.
And would have just eaten the penalty if you'd have needed the money early?
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Old 09-13-2017, 11:02 AM
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And would have just eaten the penalty if you'd have needed the money early?
If absolutely necessary. Would have tapped other funds first and only dipped into those if we exhausted other stuff.

There was a time years ago when I was actually churning I bonds. The interest rate was great and the redemption policy was different so I was actually able to make a decent profit even with the penalty. Once they changed the policy, I had to stop doing that and just kept the ones I still owned.
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Old 09-14-2017, 10:41 AM
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Steve how do you buy I Bonds. I am thinking of getting into them. I was told that years ago I should wait until the fix rate is higher.

I typically just save cash when we know big ticket items are coming. Example we are starting a basement renovation. The contract says $50k, we're budgeting $75k. We also have to pay for the garage doors $3700 costco, cabinets $3250 laundry, $3000 family room, and $3000 mudroom. So I know about another $13k on top of our $50k estimate from contractor. I'm hoping to not run 10% over.

Now we have that much cash on hand and we start October 2nd. Should we have "invested" the cash? Why bother. We also have our EF in different layers. We have 6 months in cash which covers most expenses that come up, then we have our taxable investments which is the rest of our money.

When we had less money we invested everything. It never mattered we'd take the penalty because we were counting every penny that making even an extra $100 was worth the risk. Nowadays it's less stressful and easier to breathe just having extra cash. I could be investing more but it's a lot of work.
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Old 09-14-2017, 11:05 AM
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Steve how do you buy I Bonds.
https://www.treasurydirect.gov/indiv...ibuy.htm#where
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Old 09-14-2017, 08:58 PM
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Steve how do you buy I Bonds. I am thinking of getting into them. I was told that years ago I should wait until the fix rate is higher.
I wrestle with that argument (wait for a higher fixed rate!) all the time, and it has mostly kept me from buying more I-Bonds for the last 4-5 years... Which in retrospect, is silly. Even with their fixed rate at 0%, the inflation rate has mostly been pretty reasonable, and I-Bonds have earned between 1.5% to almost 3% over that time. The next closest thing to that is a 3-5 year CD, which could be argued is still not as good as the I-Bonds, because they get tax deferred earnings and have a relatively light 3-mo penalty before 5 yrs, then none at all. Plus, they'll always keep up with inflation, earning interest for up to 30 years.

Long story short: if you're interested in I-Bonds and want a better place to keep non-immediate term cash savings, I-Bonds are a great option. And don't be like me... If they fit your needs, buy them now. You can only get $10k/yr per person, so if you have alot of money to sink into them, better to start sooner than later. If rates rise dramatically over the next couple years, you can always bust them open & buy new ones... Or just buy more at the higher rate.
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