There are a lot of money ideas floating around in my head these last few months. This is mainly because we are finally settling in being a one-income household, having put the financial stress of moving behind us. As we start out a new year, I want to take an opportunity to mind-dump some money ideas that I've been having, and also confess about some advice I gave you that I don’t follow.
Before I take a huge money dump, let me update you. If you read my last post, you know that I’m in the process of implementing a new financial plan for 2014. The core of the plan is simplicity and automation. Because I accidentally marked down a payment on my debt budget spreadsheet in the wrong column, I thought I had paid a bill that I hadn’t. Needless to say, a late fee and nasty letter threatening cancellation of my insurance spurred me into action and fueled my desire to finally pull the trigger and fully automate my bill paying.
I set up all my recurring bills to either pull from my checking account or credit card automatically. Once I have tested this for a month or two and verified that it’s working, I had planned to implement the final phase of the plan, which is having my credit card autopayed from my checking account, and my monthly Roth IRA contributions autopayed as well.
There were a few hiccups. I had a letter sent to me saying I entered my bank account info in wrong, which meant I would have to manually pay one bill.
Upon further thought, I am going to indefinitely delay full automation. Because my credit card statements don’t mirror a calendar month, I’m not sure that I can set it to autopay the balance that exists on the first day of every month (rather than the statement balance at closing). And because my paychecks come every two weeks, and the calendar ensures that this is a different day every month, I’m not quite ready to turn a blind eye to this. I have achieved my overarching goal of simplicity and ensuring that I never miss a bill due payment again, I still like the idea of taking a look at the credit card bills before sending them my money, and I also like the feeling of manually pushing a big pile of cash towards Vanguard like a poker player and saying “all in.”
Maybe in 2015 I can fully automate everything, but I still need some time to get used to this new financial plan. And with an FSA Dependent Care deduction expiring and a new raise kicking in, I still don’t have a full picture of how much larger my take home pay will be each month.
Credit Card Emergency Fund and My Lie
Maybe a year ago I devised something I proudly called the Best Emergency Fund Setup Ever. I’m writing today to let you know that I was wrong in calling it the best, and to let you know that I never even implemented it for myself.
In fact, I was so glib in that post I deserve a slap across the face.
To refresh your memory, I proposed an ALL CASH fund that is set up in tiers: cash at home ($1,000), cash in a savings account linked to your checking account ($2,000), cash in an online savings account ($3,000), and cash in a safe deposit box in another town ($4,000). When added together, the total is $10,000.
I didn’t do any of that. I do have a $20,000 emergency fund, but it consists of cash and silver bullion at home, a small amount in my linked savings account, approximately $2,500 in a brokerage account, and over $12,000 in an online savings account.
I am revising my advice to say that the BEST emergency fund is the one that works for you. Setting up my BEST SETUP EVER was more work than I was willing to put in, and actually saving the money was hard enough. I’ve recently went so far as to consider my open lines of credit as part of a super emergency fund, throwing my ALL CASH requirement out the window.
Why is this? I thought honestly about what I would do in an emergency such as a total loss of income. In that scenario, a true emergency, I would save my cash for expenses that I could not charge, such as my rent and a few utilities. I would likely keep my expensive apartment for at least three months of job hunting before I gave up and moved in with my parents, so having cash for that is important. Things like food and sundries can go on the credit cards, to be worried about once I get back on my feet.
So with my $20,000 in cash and about $30,000 in credit, I finally feel prepared for an emergency. Additionally, my average cash balance in my checking account is $3,000 per month, and I can easily cash-flow any small emergency up to $1,500 without even touching my fund.
Obviously the BEST emergency fund is the largest one that doesn’t impede your other goals, so Warren Buffet probably holds that title. So while I still think my “best” emergency fund setup is a good one, the best is the one you create and stick to.
Roth IRA 2013 Deadline
Around this time last year, shortly after becoming debt free, I challenged myself to save $10,000 by New Year’s Day 2013. That didn’t happen.
This year I’m giving myself another goal to shoot for: max out my Roth IRAs for 2013 by Tax Day.
Most of you probably know that you can contribute up to $11,000 per married couple per year into a Roth IRA, so long as you fall below the phase-out limits and are below age 50. This equals about $915 per month if you are spreading it out over a year; not impossible, but not easy for most people.
I opened our Roth IRAs at the beginning of November. Yeah…
But, don’t panic yet, because the IRS allows you to contribute to your IRA up until Tax Day of the following year, meaning I have about 6 months to fully fund my IRAs for 2013. What this also means is that unless I want to be on an April to April funding schedule, I have only 6 months to fund my IRA for 2014 as well. Double the fun!
Because I had some extra cash from oversaving for my emergency fund, I have been able to put in $5,000 of the $11,000 so far. With 8 paychecks remaining before Tax Day, I need to contribute $750 per paycheck, every two weeks, to meet my goal. Coincidentally, $750 per paycheck is my goal for saving/investing, and if I can stick with it for the rest of 2014, not only will I fully fund my Roth IRA for 2013, I’ll fully fund my Roth IRA for 2014 by the end of the calendar year. After Tax Day, I will only need to send $611 per paycheck to the Roth to reach full funding, leaving approximately $300 extra each month to send to my taxable brokerage account.
I’m not yet sure I can make this goal, but it will be fun trying. Actually, it will be stressful trying since I am an obsessive worrier, and we’ll see if I ultimately allow my cash emergency fund to swoop in and save the day if I fall short.
Best Wishes for a Prosperous 2014
I want to thank you all for reading and following along on this strange journey. When I started my own personal finance journey, I was working to pay off over $100,000 in consumer and student loan debt. More than two years after starting this site, we are completely debt free and investing for the future. I hope you all have great financial success in 2014.