As you can tell from yesterday’s clean up of all our banking accounts, change is in the air and we’re not stopping until we’ve gone over all of our (financial) hopes and dreams ;) We got a lot of our “extras” out of the way the past few days, but one thing that had been eating me up for quite some time now was the way we were handling all our cash reserves. In particular, our Emergency Fund.
When we first created it 4+ years ago, the dream was to get it back up to $5,200 after some massive mistakes on my end trying to game the system with our home equity line of credit and effectively “losing” it all in one fowl swoop (one of the first posts I ever did!). I was also pretty notorious for xfering money in and out of accounts all the time too due to my lack of poor management skills and basic addition, but eventually I caught on and understand that you had to LEAVE YOUR MONEY ALONE in order for it to grow ;) You couldn’t be taking it out all the time, even if you meant to put it back later.
So $0.00 became $3,000, which then became $5,200, and then eventually grew into $10,000 where we just left it alone and figured it was “enough.” It was a solid number which I greatly liked, but one I didn’t really pay too close attention to over the past four years as our lives went on, and our circumstances changed. Back then $10k had covered roughly 3 months of living expenses when I was pretty much living ALONE, but outside of that there was no real rhyme or rhythm to it – something many of you caught on to, and had continued to ask me about on almost all of our net worth updates since ;)
It wasn’t until a reader of this blog, Bobbi, left a comment here in May that REALLY got me to stop and re-evaluate everything. I had been bitching and moaning about how hard it was getting to continue forward with our mortgage payoff plan, and wondering if I should do something else w/ all the money instead (like save it), and this is what she (he?) said:
“I am curious as to what level of savings you feel comfortable with? Almost 80k in cash and no other debt is pretty comforting to me… Maybe an idea is to come up with a set level of savings… For example… say 65K…. and you commit to keeping it at that level. That way you have a ‘plan’. You continue to pay for repairs and pay down mortgage and whatever while your savings remain at that level. If it dips below that you stop the mortgage plan and throw everything back in savings until you get back to your original 65K… When x happens you do y. You know how you are going to deal with it. That may give you peace of mind.”
That really hit me hard. I knew I was comfortable with the amount of cash we had stored up already (at this point $70,000, scattered across a handful of accounts), but it never dawned on me to actually TALK about a number out loud and then finalize it. Some months I could be fine with $50k and others $100k, but I didn’t know what the wife thought really on it outside of “I just want a lot of cash there just in case” type deal. We had both been wishy washy about it over the years, and this comment physically got me to speak up :) So thanks Bobbi, wherever you are!
That night on our walk around the neighborhood, the Mrs. and I talked about our future goals and what would make us both happy cash-wise, and outside-wise. We knew we wanted “enough” to not worry about things down the line, but what that actually meant we weren’t sure. $60,000? $100,00? What would we ever need it for? How long would it last if we both lost our entire incomes?
We chatted about it all. And in the end we decided that, YES, we wanted a big chunk as liquid as possible to make us feel totally comfortable every single day – esp now that we have a child in the family – but not TOO MUCH where it hindered growth in other areas of our net worth goals either. We wanted to draw the line again at one solid number we needed to have in our account no matter what.
And this is the number we decided on: $66,000.
Approximately 12 months worth of monthly income needed to survive at our current lifestyle today – not including any additional savings and/or investing. (Pretty scary, huh? And that’s AFTER tax!) If my income stopped tomorrow, we’d be able to comfortably live with nothing else needed for an entire year. And putting THAT into perspective is just incredible. We’ve had over $66,000 many times over the years, but psychologically it was never enough! It was just one big soggy number with no true meaning behind it. And now that we have a solid baseline to stay on top of going forward, it feels like our minds have totally opened up and can breathe a sigh of relief ;) We’ve figured it out!!
And on top of that, I now KNOW how much money I have to play with too in order to grow our net worth even more! The goal isn’t to just keep adding more and more money to the pot in order to feel safer and safer and SAFER (there’s only so much “safe” an entrepreneur can take!), but really to have a cut off point too so we know how much *additional* money we have to grow OTHER areas of our finances too. Whether this means more mortgage payoff, stocks invested, or even my grand idea of snatching up an investment property! Haha… it doesn’t really matter. As long as those cash reserves never dip below $66,000 again, all will be good in the Money household going forward. And if it ever DOES go under that new magic number, well, I’ll have to do whatever it takes to get it filled back up! Even if that means stopping right in the middle of a new project or goal – no ifs, ands, or buts about it says the wife ;)
Once we figured out this new plan, it was then about making it EASIER for us to follow and make sure we didn’t go back to our older ways again. Before Operation Streamline yesterday, all of our cash was scattered across a ton of accounts:
- In my personal checking
- In my personal savings
- In Mrs BudgetsAreSexy’s personal checking
- In Mrs. BudgetsAreSexy’s personal savings
- In my business account
- And in our old Emergency Fund (aka money market account)
And now, we’ve condensed it to this:
- One Monster Cash Account (aka our house savings)
Instead of adding up tons of accounts to see what our main totals are at any point in time, now all we have to do now is look at the ONE and be done with it! We’ll know instantly where we stand with one simple glance – it’s awesome. And not even close to brain surgery :) Of all the changes that went into effect yesterday, this was by far one of the BEST we made. And now we both have immediate access to it too, making our lives even simpler!
If anyone’s struggling to put together a good game plan out there yourself, I highly suggest standing back for a bit and taking a broader look at your overall picture. Maybe moving around some bank accounts and/or money will better fit into your new lifestyle/goals too? Maybe you have some other nagging annoyances going around in your head that you know you should stop pushing off?
Whatever the case, only YOU know what types of things need to be fixed in your financial lives, and from my own experience here over the past few days, I can tell you it’s MUCH better to just honker down and get it all figured out NOW. The more it stews, the worse it gets, and there’s nothing better than a clear plan and a clear head :) I wish you all the both!
(Photo by bsabarnowl. Edits by J$)
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Congratulations on having your plan in place. I love the idea of having a year of expenses available and the peace of mind that would bring! While it feels pretty far off right now, it’s something I definitely will talk to my husband about!
Just keep swimming, just keep swimming has been our mindset as we keep making progress. Your post is a good reminder to stop to reevaluate our course along the way!
Great idea to state the number! “Enough” and “comfortable” aren’t sufficient for identifying your goals. It’s amazing how galvanizing a number, any number, can be. My wife and I picked our number, and we called it our Drop Dead Money number – enough money to tell our customers to drop dead (we had a business at the time).
We were fortunate enough to reach that number because of the recession. (If you wanna know how, you’re gonna have ask LOL) But if we didn’t know the number, we wouldn’t have known we hit it.
See, “enough” and “comfortable” usually translate to: “just a little more” The only sure way to miss your goal is to not have one…
This sounds really good to me! I need a cash number so that I can continue using the rest of it for the best investment at the time. Thing is right now I have an emergency fund number, a engagement/wedding number, a student loans pay down number (to help my gf pay down loans after we get married) and many other things in cash. I guess I can add them all up and come up with my number and then stick with that and invest the rest. Realistically though investing will be saving for the student loan pay down but I’m OK with that.
That’s awesome that you found a piece of mind number. Although I couldn’t keep $66,000 in a savings account with today’s rates. I moved our e-fund into a Vanguard bond index fund. In the unlikely event that the bond fund decreases significantly and I need my money, I figured I can pull from stocks. In the very unlikely event that stocks and bonds are down and I need my emergency fund, I guess I’ll be weeping in my bed while you’re sleeping soundly in yours.
@Heather Stephens – You know it! It’s always just a matter of time, my friend – always gotta be working towards that next goal :)
@William @ Drop Dead Money – HAH! Love it! And so true – I always needed “a little more” or wanted to hit that next $5k or $10k milestone and it’s annoying!! Since throwing out this number I’ve been soooooooooooo much more relaxed and chill. It’s only been a few days but I’m liking the new state of mind ;)
@Lance @ Money Life and More – Haha yeah – most of us have a ton of difference numbers for everything :) As you cross them off and accomplish them though, they slowly dwindle into a few! I can’t wait to have no mortgage later (my #1 number!) and have 80% of our revenue going towards investing/etc ;) Gonna be sexy!!! Although I suppose we’ll then be dealing with college and other costs for the baby(s) huh?
@K @ Get Worth – Haha… well, I may be sleeping better but you bank account will be rising a lot more faster than mine, that’s for sure ;) It does sting a little keeping it all in a savings account w/ no interest, but what the wifey wants the wifey gets! And I don’t mind enough to fight the battle really, at least at this point…
Congrats on consolidating all the cash J Money! I’m interested in hearing where you stash your cash. I keep about 90% of mine in Ally 5 Year CDs. Ally’s 5 year CD rates yield 1.74%, which is over double the .8% I get in ING, but the real nice thing is the penalty for breaking out of the CD is only 2 months of interest. If you hold the CD for 4 months, you automatically get a higher rate than you would from ING even if you break out early.
I hope I don’t need to break out of a CD, but I’ve created 3 of them in case I do need extra cash. For your 66k fund, I would do something like $10K, $23K, and $33K, that way if you only need a few thousand dollars you can break out of your smallest CD. Hope this helps you or some other readers!
I don’t have a cash number in my head, although I have been thinking about it as we have started saving in general.
I’m a huge proponent of liquid cash.
1 year of income saved up would make me comfortable as well. but now that we hit the 6 month number I starting to spread he money going to that out towards other investments as well since we have no retirement plan lined up yet. I wanted 6 months of funds before worrying about retirement. Now reaching 1 year saved up with take longer but I’ll be moving forward with future plans at the same time
Great job consolidating. It should be much easier to keep track of now. We have 2 main accounts and those are the only two I draw from. Our minimum is $50,000.We have a bit more right now and that’s ok for now.
Are you going to take the excess you have in that account today and apply it somewhere?
Right now all my money is just getting thrown into savings or my strongbox (getting audited by the IRS has me fearing crazy stuff like frozen accounts, even though that likelihood is next to none). I have no material wants, my Roth IRA is full for 2012, my whole life policy annual premium -$9K – gets paid up this week, I’m not traveling these days because I need to lose weight to enjoy that again, gym membership is paid through Jan 2014, I have no debts…and I’ve got $14K over my 12 month number. This is kind of a weird feeling.
Where are you keeping that giant stockpile of money, J?.. Now that you’ve closed all of your others, are you just keeping it in normal savings, or in an accessible money market account or something?..
.. Or just in a shoebox under your bed.. You did say cash account :D
Wow, that is a lot of cash. My number is about a 1/3 of that to feel comfortable (at least as cash). I just don’t like having that much money not working for me. Of course I do have the advantage of no-housing payment so that helps alot. I haven’t gone as extreme as K up there, but we do keep most of our non-emergency fund in a taxable account.
But you are right, everyone has a different number and it IS all about feeling comfortable. Cheers for reaching that comfort level!
Wow it must feel good to have a years of expenses sitting in an account somewhere! It’s difficult to build a substantial emergency fund because there always seems to be something more pressing (retirement, paying off student loans, saving for kids school, etc..) to throw the money at.
I love it how you always know where you need to be financially…you’re always able to find your magic numbers!
I’m actually working on doing a similar thing. Pulling money from various accounts and putting it into two simple accounts. Hopefully all will be wrapped up soon (like end of next week).
Dude, you need to withdraw it ALL in one dolla bills and make your wife holla when you poor them over you guys in the tub!
Make it rain!
J$, I was curious how you came up with your number. What expenses did you calculate? I did a calculation a while back and have that amount sitting in a local community bank’s MMA making pitiful interest, but at least it wasn’t with one of the big evil banks and the interest was better than USAA. I also liked that it was slightly inconvienent to get access too, so that it really does just sit there un touched. Looking at your number makes me think I might have forgotten something in my calculation – mortgage, taxes, food, healthcare, transportation, insurance, utilities, student loans… what else did you account for?
Also, I keep my savings for a new car in the same place, what do you suggest for those midrange savings goals? The car could go at anytime, or hopefully a few more years…
Our cash number for me was about $20,000, but we’ve never really talked it through. My wife wants a big number, but we haven’t worked out the details of why. This is a good conversation to have for us, I think I’ll schedule it in :)
Glad you are happy living a simpler financial life and that you now have your magic number. If I were you I would add about 3 grand for inflation purposes, ha. Thanks for Bobbi for setting you straight. Oh wait you already thanked her, lol. Well that’s one massive emergency account J. Good luck.
Sounds like a great plan, 66k and the Money family feels secure. :-) That’s good stuff.
I’ll just be happy if we can ever get our emergency fund up to 5k LOL. The whole buying our first house thing means our dough is going into our house fund instead. I’m sure after things settle down, we can start throwing money at our emergency fund again.
Congrats on all the hard work you are putting into your accounts/saving time and energy, etc. Oh and the big savings account!
My safety number is around $30,000, but is more of a joke. Like haha I will never get there, at least not for another 5 years. I think right now $1000 and a credit card with a $10,000 limit makes me happy.
The reason for the credit card (not mine) is because I have $2000 as an emergency fund, but had to plunk $4000 down on this semester of school from the rest of my savings fund. Once I finish school I will save more, but here’s hoping to holding on with my teeth and making it through school without something bad happening! (please no one lecture me about how emergencies always happen or why credit cards are the devil, I get that, I know that, this is a different situation and all the details would scare even the toughest money person away.)
But on the bright side I finally settled on a major!!!!!!! WHOOP WHOOP! I picked a safe major and is something I am absolutely loving. Accounting. I think the scary part about it is that I am finding business law very very interesting. So interesting in fact, that I have already read my school book and class doesn’t start until next week! I must be a nerd HA!
I would loooove to have a year’s worth of income saved up!! In the meantime, though, my bare minimum number is 4 months. My husband and I currently have almost 6 months set aside, but a little bit of that will go toward a car downpayment soon. *sigh* But I can’t even imagine how scary it would be to NOT have that money saved up to cover expenses like this, so even if I won’t be happy about seeing that balance knocked down to my 4-month minimum, I just try to remember that I’m lucky to even HAVE 4 months of savings set aside in the first place!
This post belongs to me! I would have thought my name and money philosophy would have had an affect on you a long time ago ;) Regardless, we are probably over our 5 year emergency fund right now, low expenses help. Working on our 30 year emergency fund, however :P
Right now I have about 5 bank accounts because of certain perks I get from each bank. Free safe deposit box from one, good history with another, bribed with money to open with another, good history with the 4th, and “good” interest rate with the 5th. I’ve been wanting to consolidate like you, but I find it hard to give up those perks.
@Mark – Awesome! I’ve always wondered how people work it with CDs, so this is great hearing your strategy (and recommendations) like that. Thanks man :) To be honest, right now we just have it all in a simple barely-interest savings account. Mainly for convenience on my behalf, but also the Mrs. likes having straight up cash stored away too – so we’ve agreed that’s okay, since I have permission to do whatever I want with all our other money outside of that too ;) I don’t care if we lose a few dollars here and there if our overall goals are being met.
@SavvyFinancialLatina – You and my wife would get along great :)
@Em – Yeah, I think that’s be great actually! 6 months is more than fine now, and in general, so I’d be investing and using your extra cash in other departments too if I were in your shoes. You gotta be well-rounded for sure, so I think you’re being smart over there :)
@Joe @ Retire By 40 – Yeah doggy! Work it!
@Evan – No, not today at least. I’m gonna let extras build there until I know what I want to do with the rest of it and then jump ASAP. Which will probably be either investments into our future 529 for the kid, or more against our mortgages again. All depends on my mood at the time ;)
@MoneyMateKate – Holy crap girl, you are RULING IT!!! Good for you, talk about being sexy! :) And I fear that whole “freeze” thing too sometimes (another reason we have a few hundred stashed away just in case) but I don’t know the likelihood of all that either… better to be safe though, right?
@jefferson – Haha, what if I just filled my entire bed w/ dollar bills and slept on it every night? That would be cool! :) But nah, it’s just in a plain ol’ savings account right now. We’re gonna keep it there to make wifey happy and my minimalism happy, and then invest/save/move the rest of future extra money into smarter places… I don’t mind losing a few dollars just holding it liquid like that.
@Brian – Thanks man! I can’t wait to say that we don’t have any housing expenses too one day :) Must feel nice!! (well, no mortgage expenses at least – we’ll always have maintenance and insurance/taxes/etc…)
@Donnie Lawson – For sure. It’s taken me 32 years to get to this point and it’s still hard to hold on to it all sometimes ;) And I imagine even more so as our child grows up!
@Ornella @ Moneylicious – Hehe, I try! It takes me a while sometimes, but eventually I get it :) I’m sure YOU’RE awesome at it too!
@Jenna, Adaptu Community Manager – Great! And smart!
@Financial Samurai – Who said we haven’t already done that?? :)
@MrsGreen – I like that it’s harder for you to get to over there, I’ve heard others do that and it works well ;) Our $5,500 number includes everything you already mentioned, plut other random stuff that adds up to a few hundred every month too (presents, extra outings out, clothes, etc). Some of the things were canceled out of this equation when I started working from home (like transportation costs/gas/etc), but other than that I think our calculations are pretty similar. In a PERFECT world it would include savings and money for investing too, but figured that’s not really an “emergency” situation so we’re gonna keep that out for now ;) As for mid-range savings goals, that’s a toughie as we’re now just using our main one for everything and keeping it all condensed like that… I do know that others just open up another savings acct though with the same bank so it’s easier to track/maintain and use THAT one for these kinds of expenses – maybe you can do that? Or just keep it on top of your main one too? Just depends on what you’re more comfortable with, and how you operate w/ your money :) Great questions though!
@Jacob @ iheartbudgets – Yeah dude, sounds like you two were the same way we were before our talk :) It really helps! (And adding in beer/wine does too, haha…)
@RichUncle EL – Thanks man! That’s the only real downside to it all too, huh? Losing $$ through inflation. But you gotta do what you gotta do! We’ll see how it works over time…
@Jen @ Master the Art of Saving – Houses do that to you :) I don’t miss that at all! Haha…
@LB – Wowwwwww, haha, that is awesome!! Congrats on settling on your major :) Naturally we’re all loving you being an accountant, haha… nerds definitely uniting! (And I say you rock those credit cards too – no shame in that at all! Big fans of them when used properly)
@Stephanie – Yup! But more SMART than lucky ;) It takes initiative and patience to build up all that money!
@StackingCash – Haha… I think you officially have the world’s record of emergency funds :) That is all kinds of awesome, my friend – I hope we know each other when you hit 30 years!! :)
Dude!! Isn’t it the most awesome feeling in the world when you’re suddenly hit with such an easy, yet earth-shattering epiphany like that? I love it when suddenly you realize exactly what you need to do and how to do it, and the solution has been staring you in the face so long that you really should’ve gotten goosebumps from the intensity of that stare!
Congrats on your major accomplishment! I know it took a lot of hard work and discipline to get there. My husband and I are doing our best to hustle our way to a sense of financial security as well. We both work full time. This year I finally opened an online shop to sell crafts that I create and I’m constantly trying to add more to my shop. So far I’ve only sold to people here at work, but I make them go online to pay so my shop doesn’t look completely neglected! I’ve also started a blog but I haven’t even thought of trying to monetize it since I don’t write frequently enough. Right now it’s more like just a “see what I’ve just completed” list of crafts.
We are also working with a high school buddy of ours who is a realtor, trying to flip houses. We teamed up with a friend of my husband’s as well to spread out the financial burden and risk among the 3 of us. So far we’ve flipped 2 houses in 2 years. The income is very modest, but it’s more than we had before! And we’re doing this slowly so no one gets spooked! (By which I mean mostly me, I’m the financial scaredy cat in this trifecta!)
So far our emergency reserves seems to hover somewhere between $0 and $5,000.00, depending on the progress of the flip. We’ve paid down our credit card debt from a whopping $30k to a tiny little $20k. Ok, it’s still kinda big, but there’s progress at least. And our goal is to pay it off with the next flip or two. Which translates to about the next year to 18 months at the pace we’re going. Wish us luck!
Keep up the great work and keep those inspiring and funny blogs coming! It always helps to remember that this is work and everyone else has to work at financial independence too. Just like going to the gym, it’s always good to look around and see all different sizes of people working right alongside of you.
Haha yeah!! Great way to put things in perspective, I like that :) And awesome about all your flipping of houses and craft stuff too! You’re a full-blooded entrepreneur, I love it ;) And it’s all gonna add up over time and turn into something bigger!! Keep it up my friend – thanks so much for stopping by and sharing your thoughts!