So how much is "too much" to have in the bank?

Well, that's why I just keep a higher balance in my checking account. My savings account isn't meant to be touched for anything but dire emergencies, or a future home down payment etc.

I keep my checking high enough to have some leisure money, if I want to buy something I can't afford with my normal leisure money I'll just save up money in checking until I can afford it.

It doesn't maximize interest, but with ING being a bit over 1% I don't obsess about keeping as much of my money over there as I can.
 
[quote name='dmaul1114']Well, that's why I just keep a higher balance in my checking account. My savings account isn't meant to be touched for anything but dire emergencies, or a future home down payment etc.

I keep my checking high enough to have some leisure money, if I want to buy something I can't afford with my normal leisure money I'll just save up money in checking until I can afford it.

It doesn't maximize interest, but with ING being a bit over 1% I don't obsess about keeping as much of my money over there as I can.[/QUOTE]

This.
 
Sure, but for me that has to come out of my leisure money or I don't buy it. I won't touch my savings for something like that.
 
yeah - I don't touch savings for anything unless it is an emergency or something. We used savings for the new roof we just put on the house and to pay off my Rav4 but for entertainment expenses we use the checking account - if the money is not in there then we won't buy it.
 
[quote name='javeryh']yeah - i don't touch savings for anything unless it is an emergency or something. ...for entertainment expenses i use the checking account - if the money is not in there then i won't buy it.[/quote]

qft!!!
 
[quote name='dmaul1114']Sure, but for me that has to come out of my leisure money or I don't buy it. I won't touch my savings for something like that.[/QUOTE]
Same here. My savings is strictly a "I just lost my job and it may be a few months before I can find something else" account.

I keep a minimum $3000 buffer in the checking for smaller emergencies (dental work, major car repairs). Anything above that amount is money I can play with...after bills are paid of course.
 
Yep, same here. Like I said, savings interest is so low (even in the online banks) that I have no problems keeping a bit of a buffer in my checking.

Both for emergencies and weathering the summers if I don't have full summer salary. Even if I do (and I do this year), my last academic year paycheck is in mid may, and then the first summer paycheck is in mid July, so always good to have a little buffer in the checking account.
 
So I'm revisiting this conversation... I am meeting with an architect next Wednesday to discuss finances and the next steps in connection with an addition to my house. She has already provided floor plans and now we need to go over the budget. I am guessing by her cover letter that cost is going to be a concern since we gave her a "drop dead" number and she said we will have to make some "tough decisions." Anyway, I theoretically could up the budget but that would obviously reduce my savings and my level of comfort.

I found out that a friend of mine who has what I would think to be a similar lifestyle keeps almost no money in the bank and if he has to go even one month without a paycheck he doesn't know what he would do. I could never live like that but it made me think that maybe I'm a little over-conservative in what I think I should have in case of emergencies. If 6 months is the norm does that include groceries and EVERYTHING or just 6 months of rent/mortgage to get to a ballpark number? The worst case scenario if I lose my job is that my wife goes from part-time to full time and she makes a good salary anyway so I think we would be OK and I think I'd eventually be able to find another job (but maybe not for as much money).
 
A 6 month safety net includes EVERYTHING. Rent/mortgage, utilities, food, needed clothing (growing kids etc.), some buffer for any medical emergencies, car problems etc.

It's meant to be money that you can live off of while looking for another job, so it has to cover all the necessities.

One can really not be too conservative when it comes to that. Once you have that saved up, then some can get to conservative and not really enjoy life by still pinching every single penny.

But one should pinch most pennies until they've got that nest egg saved up.
 
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Hmmm... if I increase my budget and I figure on $1,500 a month to cover groceries, bills and everything else I'd only be left with about a 5 month runway.... Of course this all assumes I get fired tomorrow (which I don't think will happen) because we save month to month. I never take any chances - maybe now is the time. Also, something else to consider is that we are going to be in this house for a while now and the addition is a one-time thing - better to stretch ourselves now and not regret going for exactly what we want down the road. We saved up more than 50% of the total cost of the addition (the remainder is being financed through a home equity loan) over a period of 6-7 years. I'm also only in my mid-30s so there is plenty of time to build it back up.
 
Yeah, of course factor your likely job security etc. into such decisions. It sounds like you have a decent amount saved up.

I'm amazed your expenses are only $1,500 a month with Kids, being in the NYC area etc. Mine are quite a bit above that in a much cheaper city and no kids when I factor rent, insurance, car payment, student loan payment, utilities etc.
 
I have no car payments (both cars are fully paid for - 2005 MDX and 2009 Rav4) and no student loans - I paid those back already too. Only monthly expenses are groceries, utilities, cell phones, cable/internet, gym membership and insurance. I don't carry credit card debt or anything either. I'm probably forgetting something but that's about it.
 
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Oh, ok that makes more sense. In that case, $1500 seems very high, so you could probably get by on less than that a month if you lost your job by cutting back on non-essential expenses.

So it sounds like you have plenty of nest egg saved up.

My monthly expenses run a little over $2,000 factoring in rent and the other bills and food etc.
 
way i look at it

3-6 month emergency fund
than any excess either savings or Roth/Traditional IRA to save for retirment.
than if having more excess, Mutual Fund(personally i think its the safest and best way to invest right now if you do not want super risk)
 
I have a question.

Being that I am a independent freelance I racked up a decent amount of debt when I first started my career on gear (cant get gigs without gear) medical bills (no insurance) student loans when I went to tech school and internships. Plus now the added debt of my wife who has about 30k in student loans a credit card and some other small things.

Up until about a year and a half ago our debt was out of control but now its pretty well balanced due to the Snowball System. I dont know if that is the official term. We would pay as little as possible to the whole of creditors and really focus on 1 by itself. This has worked out well, we have paid off 2 smaller student loans and have our credit card debt down to about 15 hundred but course still have a while to go to be close to comfortable.

My question/problem is this. What is more important, paying off debt or saving money?

Ultimately I want to get rid of all non essential debt, meaning any debt thats not a 20 year student loan. I spend almost ever dollar I have on lowering my debt as quickly as possible. My logic is, not having the bills is a much better situation than having a bunch of money saved up. The less debt I have the more my shitty credit rating goes up and the more opportunity I have to save later. Now we do have emergency money, its no where near enough to live off of but its there if the car breaks down or I break a leg or something. Of course I want to start saving tons of money but I dont think I can until I pay of tons of debt.

By the way I am 25 years old if that makes a difference in how long things will take and how much time I have to complete them.
 
yeah, I was thinking to try and get it down to around $1,000 but groceries are like $150-$200/week (this is where the kids kill you). FIOS is over $100, the gym is $60, cell phones are $80 and I have no idea what insurance or utilities cost because I don't pay any of the bills. Plus there are tons of little things that add up - birthday gifts, holidays, gas, crap for the kids (clothes mainly) and other stuff you can't avoid or don't even realize. Everything is expensive. Obviously if things got tight there are things I could do without but still. We keep detailed records of how we spend virtually every penny (no cash - we charge everything) and I am always amazed at the end of each month how much money gets "wasted" on what amounts to nothing.

$2,000 a month including rent seems pretty good to me - have you considered buying a house?
 
[quote name='Soodmeg']
My question/problem is this. What is more important, paying off debt or saving money?
[/QUOTE]

You want to get rid of any high interest debt ASAP--like the credit card debt.

But it's best to get 3-6 months expenses saved up first. Especially being a freelancer since you never know when your income stream can take a hit.

So pay on the high interest debts while also saving toward that nest egg. Then focus on putting more money into the debts before doing anything like buying a house or car etc.

[quote name='javeryh'] Obviously if things got tight there are things I could do without but still.
[/quote]

Yep, if unemployed things like gym membership and fios should get the axe.

$2,000 a month including rent seems pretty good to me - have you considered buying a house?
Click to expand...

It's not bad, but not great. My take home pay (after taxes, benefit premiums etc.), is around $3,800 a month and I have to save up as I'm not guaranteed to have paychecks for all 3 summer months being an academic on a 9 month contract. Have to land grants, consulting contracts etc. to pay those 3 months (well 2 months for last year, this year and next as I get 1 month through my department for my first 3 years). I could come down off the $2,000 to around $1,600 or so probably as I'm paying extra on my student loans and car loan.

So I haven't though of a house. I just did get my 6 months expense nest egg saved up a couple months back, so I don't have any down payment saved up yet.

Also, I'm not sure how long I'll stay here. Academic careers tend to be pretty nomadic. So I'd kind of prefer to wait until I've got tenure some where and decide I'm ready to settle down before buying anything.
 
[quote name='Soodmeg']What is more important, paying off debt or saving money?[/QUOTE]

Get rid of your debt. I wouldn't spend every penny on it (because you will need some emergency money) but I would work out a plan to get rid of it as fast as reasonably possible and be vigilant about it until it is gone. Once you are free of debt you will have much more freedom to achieve your economic goals whatever they may be (owning a house, going on vacations, etc.). You will also have more freedom to borrow greater sums of money in the future (in theory) if you can improve your credit rating.

Every little bit counts too. A few months ago we ran some numbers and realized that it made more economic sense to pay off my Rav4 in one shot instead of over the next 3 years because we were paying more in interest than we were earning on the money in the bank (factoring in inflation and expected rate of return, etc.). Short term it hurts (less money in the bank) but long-term we are paying less out of pocket for the same item AND we now have more money to save monthly without the car payment.

EDIT: Just saw that you are only 25 - you have plenty of time to get things right and climb out of debt. It's tough to balance your finances with everything else in your life - I mean you are only going to be young and in your 20s once so to a certain extent you have to enjoy life too. Don't skip out on a vacation with your friends and stuff like that - those are the things worth spending the money on, IMO.
 
Dave Ramsey's baby steps:

1. Quickly build a $1000 emergency fund (a thousand dollars will cover many little emergencies)

2. Debt snowball. Put as much as possible on the smallest debt; minimums on everything else. Once that debt is paid off, roll that amount into the next smallest...and so on

3. Build your emergency fund up to 3-6 months of living expenses

4. Invest (retirement, college for the kids)
 
It's optimal to have enough money saved for a new house plus 6 to 12 months living expenses. This considers, of course, you have not yet bought your first house. Paying cash for a house and living debt-free is a wonderful thing, especially considering how fragile the economy is. Ten years ago, I would not offer this advice. Today, unemployment is nearly 10%, the US government continues to pump money into the economy like it's nothing, and people are as scared as ever. I think $180,000 is a good amount to have in the bank. This is enough to put 130k on a house with 50k in savings. If you want a large family, you should ideally have about a quarter million saved. If your house is already completely paid and you are 100% debt-free, I would estimate 6 to 12 months living expenses, preferably closer to 12 months living expenses. You may also want to account for extra unforseen expenses, such as a new car.
 
I have some student loan debt, around $50k, but I still contribute 5% to 401k, 10% of my paycheck goes to IR, and I invest. Reason is compound interesting over the long term. Stock market will net you 8% a year, as long as your debt isn't accruing more than 8%, you're going to make more paying the minimum payments and letting the stock market increase your investments.
 
[quote name='Allnatural']Dave Ramsey's baby steps:

1. Quickly build a $1000 emergency fund (a thousand dollars will cover many little emergencies)

2. Debt snowball. Put as much as possible on the smallest debt; minimums on everything else. Once that debt is paid off, roll that amount into the next smallest...and so on

3. Build your emergency fund up to 3-6 months of living expenses

4. Invest (retirement, college for the kids)[/QUOTE]

He actually has 7 steps...

5. College Funding

6. Pay off your home early

7. Build wealth and give

I completed FPU a few months back and it was good. I don't agree with him on everything and it really depends on your situation. In my situation, I've saved 12 months expenses and I'm now beginning to put more down on my student loan debt.
 
I used to know what these savings things were. Then I bought a house. It ate them all. (I will pretend I don't have several nerdly habits that also eat up my money.)
 
Thanks guys, its reassuring to know that I have plenty of time. I often feel very rushed to get out of debt. I come from an extremely poor household (hell I make more money than my Mom, Dad and older Brother combined) and I know first hand how shitty being in massive debt is.
 
[quote name='lordwow'] Stock market will net you 8% a year[/QUOTE]

Are you sure about that, or are you just reciting your colleget textbooks? Your post reminds me of the typical investment textbook word problem in college:

Jack can invest in bank CD #1 at 10% for a one year maturity or he can invest in bank CD #2 at 12% for a three year maturity. Which should he choose?

Then, of course, in the real world, bank CDs are paying between .05% and 0.1%, nowhere near the 10% as quoted in college textbooks. Right now, it's hard enough just to retain your money in the stock market, regardless of how risk adverse you are. I have a hard time believing the stock market is netting 8% right now. Sure, maybe it has from about 1980 to 2000, but ever since 2001, investments have been tough.
 
Well over the long term the stock market has always gone up. But yes it's been bad lately, but there are still deals to be had. I wish I had more spending money to throw in it. I've passed a lot of stocks over the past year due to lack of funds that were at low points and are all bouncing back pretty well. I threw about $1000 into Sirius and Citigroup a while back and that thousand is now worth nearly $4000. Chump change to many but important to me as quick cash if something goes horribly wrong. I just wish I'd realized Sirius wasn't going to go bankrupt when it was under 10 cents a share and loaded up even more instead. Doh!

But anyway the stock portions of my work's 401k equivalent had an excellent year last year and I think we are seeing signs of it continuing to improve slowly. Common Stock fund was up 26.68% in 2009 and 15.06% in 2010. Small Caps were up 34.85% in 2009 and 29.06% in 2010. Both funds have been up every year since 2002 except for 2008.

[quote name='steve_k']Are you sure about that, or are you just reciting your colleget textbooks? Your post reminds me of the typical investment textbook word problem in college:

Jack can invest in bank CD #1 at 10% for a one year maturity or he can invest in bank CD #2 at 12% for a three year maturity. Which should he choose?

Then, of course, in the real world, bank CDs are paying between .05% and 0.1%, nowhere near the 10% as quoted in college textbooks. Right now, it's hard enough just to retain your money in the stock market, regardless of how risk adverse you are. I have a hard time believing the stock market is netting 8% right now. Sure, maybe it has from about 1980 to 2000, but ever since 2001, investments have been tough.[/QUOTE]
 
[quote name='Soodmeg']How does one get into stocks? Very general questions I know.[/QUOTE]

do plenty of research.. and if a company that has No debt and is going to buy out a company that has millions in debt SELL SELL SELL


this is what killed the AOL STOCK... AOL was making money and then took over time warner what killed both stocks.. i lost 18,000 bucks on that stock i will probally never go back into the market...

Sucks that even a 3 year CD doesnt even pay 1% anymore even if you have 100,000 to put in it.
 
[quote name='crowbb']Well over the long term the stock market has always gone up. But yes it's been bad lately, but there are still deals to be had. I wish I had more spending money to throw in it. I've passed a lot of stocks over the past year due to lack of funds that were at low points and are all bouncing back pretty well. I threw about $1000 into Sirius and Citigroup a while back and that thousand is now worth nearly $4000. Chump change to many but important to me as quick cash if something goes horribly wrong. I just wish I'd realized Sirius wasn't going to go bankrupt when it was under 10 cents a share and loaded up even more instead. Doh!

But anyway the stock portions of my work's 401k equivalent had an excellent year last year and I think we are seeing signs of it continuing to improve slowly. Common Stock fund was up 26.68% in 2009 and 15.06% in 2010. Small Caps were up 34.85% in 2009 and 29.06% in 2010. Both funds have been up every year since 2002 except for 2008.[/QUOTE]

I read Seigel's 'Stocks for the Long Run' also. I agree stocks have historically performed well when held for long durations, but the current economic market does not mirror that of the past. I graduated college in December 2005, and it seems the economy collapsed shortly after. If I was 10 years older and graduated 10 years sooner, I would have had 10 more years to invest in a healthy economic climate. My 401k has declined in value since I've had it, and I am not an aggressive investor. In fact, the only thing I have put money into that has performed well has been gold and silver. Looking back, I just wish I bought more of it while I had a chance, but that window of time was pretty short as I had just paid off all my debt at the time. That was in late 2007.

The rates of return you quote are pretty impressive. I would love to be able to earn those returns. I'm probably a bit too risk-adverse to expect such great returns.
 
[quote name='steve_k']
Then, of course, in the real world, bank CDs are paying between .05% and 0.1%, nowhere near the 10% as quoted in college textbooks. Right now, it's hard enough just to retain your money in the stock market, regardless of how risk adverse you are. I have a hard time believing the stock market is netting 8% right now. Sure, maybe it has from about 1980 to 2000, but ever since 2001, investments have been tough.[/QUOTE]

Have you paid attention to the stock market at all over the past year?

Even if you just invested in the average only (Wilshire 5000), you'd have a 17.9% return. The S&P returned over 13.62%.

If you would have invested in the Nasdaq composite (IXIC) since 2001, you would have a 12.27% rate of return.

The dow has returned 9.5% since 1/12/01.

My 401k had a return of 29.9% last year. Several more IRA's, funds, etc, easily did over 10%.

And FYI, you can find index fund returns here.
http://news.morningstar.com/index/indexReturn.html Nearly every single domestic stock index has returned over 10% in the past year, with the Russell 2000 index returning 24%
 
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Just stick to index funds (S&P 500, small cap and international) and you'll do fine. When the market is down, is actually the time to consider getting in as long as you have a long time horizon. Finding the next Google is hard but finding undervalued solid stocks isn't actually that difficult. I used to do a blog about stocks on this site when I first started going into the market and the blog's hypothetical portfolio is up over 46% over the past two-year period, not including dividend payments. With dividends taken into account it's up well over 50%.

I even started a stock market club on this site which for a while was pretty active but has died as of late. However, if people are interested, feel free to join via the link in my sig. I've been trying to resurrect it as of late.
 
[quote name='steve_k']Are you sure about that, or are you just reciting your colleget textbooks? Your post reminds me of the typical investment textbook word problem in college:[/QUOTE]

Stock market 30-year investments beginning each year from 1897:
yyc30.jpg



Then, of course, in the real world, bank CDs are paying between .05% and 0.1%, nowhere near the 10% as quoted in college textbooks. Right now, it's hard enough just to retain your money in the stock market, regardless of how risk adverse you are. I have a hard time believing the stock market is netting 8% right now. Sure, maybe it has from about 1980 to 2000, but ever since 2001, investments have been tough.
Click to expand...

Personally, I netted significantly higher than average for my IRA (a 40% increase in SNDK helped), and I began a investment portfolio in November that has netted 10% (unrealized).

But to DOK's point, this year netted much better than average. That's the primary reason I am so bullish on the market right now, you're effectively buying in at the low.
 
[quote name='Soodmeg']How does one get into stocks? Very general questions I know.[/QUOTE]

Key things I would suggest:

1) If you're not sure, go with index funds or mutual funds. Index funds have much lower costs and are a bit easier to manage. Mutual Funds sometimes outperform the market, but it's more of a crapshoot and have higher fees. Overall, a lot of momentum has moved from mutual funds to index funds in the past year or two.

2) If you're not already, invest the maximum ($5000/year) into an IRA, it's tax-free earnings, meaning if you start early on, you're going to take out a lot of money tax free at retirement.

3) If you are going to play stocks, DIVERSIFY. I personally invest in about 10 stocks in my IRA. You never want to put 100% into one stock or sector (health care, computers, mining, etc).
 
Look at it this way. Your 401k is probably done by buying shares yes? If you are early in your career you can get a lot more shares when the stocks are down and down the road when you are ready to retire it will be worth far more. It's far better to hit the rough times at the beginning rather than the end when you will have much more to lose and less time to gain it back. Of course if the stock market stays down for the next 30 years something so catastrophic has happened that we're ALL screwed and have probably degenerated into Mad Max....

[quote name='steve_k']I read Seigel's 'Stocks for the Long Run' also. I agree stocks have historically performed well when held for long durations, but the current economic market does not mirror that of the past. I graduated college in December 2005, and it seems the economy collapsed shortly after. If I was 10 years older and graduated 10 years sooner, I would have had 10 more years to invest in a healthy economic climate. My 401k has declined in value since I've had it, and I am not an aggressive investor. In fact, the only thing I have put money into that has performed well has been gold and silver. Looking back, I just wish I bought more of it while I had a chance, but that window of time was pretty short as I had just paid off all my debt at the time. That was in late 2007.

The rates of return you quote are pretty impressive. I would love to be able to earn those returns. I'm probably a bit too risk-adverse to expect such great returns.[/QUOTE]
 
We have been crushed by the stock market. We put about $25k in there back in 2000 (right before the internet bubble burst and not to far before 9/11) and we are underwater as of now. We picked low risk/low reward stocks too thinking we are in it for the long haul. I'm not sure what went wrong. We have seen some returns lately but the value went down under $10k almost immediately and we have been steadily climbing back up ever since. We would have been better off doing almost anything else. Oh well - that is typical of my luck.
 
[quote name='Javery']We have been crushed by the stock market. We put about $25k in there back in 2000 (right before the internet bubble burst and not to far before 9/11) and we are underwater as of now. We picked low risk/low reward stocks too thinking we are in it for the long haul. I'm not sure what went wrong. We have seen some returns lately but the value went down under $10k almost immediately and we have been steadily climbing back up ever since. We would have been better off doing almost anything else. Oh well - that is typical of my luck.[/QUOTE]

A good way to counter buying at the wrong time is to "dollar cost average" - invest a certain $ amount at a set interval. That helps take the emotion out of it as well so that you're not only buying when the stock market is high and selling at the low. I invest 10% of my salary and my employer matches with another 4.5% every month through the company 401K. It's been a rough ride since 2000 as you said. But at least I have been buying more shares on the dips and less shares on the peaks due to regular monthly purchases.
 
Yeah, if you're in it for the long haul, you want higher risk/higher reward stocks early on and move into lower risk/lower reward stocks as you get older and closer to retirement.

I lucked out and didn't really have any money going into retirement accounts until 2009 as I was still in grad school during the crash. I'm using a 2040 retirement data fund with TIAA/Cref that's very aggresive currently (like 90% stocks) and gradually gets less aggressive as we get closer to 2040. It's done very well, made like 18% last year.

So point being, the market is bouncing back nicely, get your money into some more agressive funds and take advantage of it to earn back some of your losses! You're still a long ways off from retirement. Be agressive now with extra money (keep your nest egg in savings, max out kids college funds etc. first) and get more conservative when you get closer to retirement.
 
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