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What To Do With Savings

04.13.2012 by Matt Jabs //

What To Do With SavingsThe Question…

DFA reader Stacy asked:

I have $20,000 in a savings account and almost no debt. What is the smartest, most conservative way to invest my money. Sitting in a savings account feels like a waste.

The Answer…
Great question Stacy, let’s take a look. My recommendations are to:

  1. keep some cash in savings for use in emergencies (emergency fund)
  2. keep some cash in savings for your next vehicle rather than financing it (auto fund)
  3. keep some cash in savings for fixed non-monthly expenses
  4. invest the rest in safe, passive investing vehicles.

Emergency fund

Be sure to keep enough cash in a savings account to cover three to six months expenses. If your monthly expenses are $3,000/month then keep between $9,000 and $18,000 in your emergency fund.

Do not invest this, it is for emergencies and needs to stay in liquid cash form so you can get to it quickly and easily when needed.

Next auto fund

Do you own your current car? If so, great, but be sure to save for you next vehicle so you don’t have to finance the purchase.

Financing vehicles is a waste of money. Some people can’t avoid it, but those with liquid cash on hand can, and they should.

Don’t buy new either, buy solid used vehicles that are a few years old. This helps you avoid that huge loss in value when new vehicles are simply driven off the lot.

I’ll never finance a vehicle again, and advise you to adopt the same position whenever possible.

Fixed non-monthly expenses

Stacy, are you budeting for fixed expenses that you know are coming, but are not monthly? I call these fixed non-monthly expenses.

Examples of these expenses are:

  • auto insurance (we pay once every six months)
  • bulk beef (we buy a quarter grass fed cow every year)
  • CSA membership
  • continuing education.

These expenses can be budget busters, but not if you plan for them!

Make a list of all your fixed non-monthly expenses, figure their cost on an annual basis, add the total amount up and divide by 12. This gives you the monthly amount you need to save to have enough money for these expenses when they arrive.

We created a separate Capital One 360 savings account called “Fixed Non-monthly Expenses” that we use to hold the liquid cash, and we tap that fund whenever one of these payments comes due. It is very useful and it saves us from having “budget busters.”

Invest the rest

Many people invest before they build adequate savings.

While it can be tempting to put all your savings into investments, it’s often not the best decision.

You need liquid cash too!

Keep liquid savings for the things mentioned above (plus any other needs specific to your situation) and invest the rest.

I too like conservative investments, and I prefer them to be mostly passive. In other words, I’m not going to advise you to go out and day trade stocks.

My recommendations are to invest in index funds and peer lending.

Open a brokerage account with Vanguard and invest in their target retirement fund that best fits your situation. This will give you diversification, balanced risk, and hands off conservative investing.

Another great option is to open a Betterment account. Betterment has built an amazing platform that helps new investors safely navigate the waters of the financial markets with confidence. Read my Betterment review and consider opening an account.

In conclusion

Right now Betsy and I have enough money saved for emergencies, our next vehicle, a years worth of fixed non-monthly expenses, and we’re investing the rest.

It feels good to be prepared.

Does anyone have any other advice for Stacy?

*******

Categories // Savings Tags // emergency fund, Investing, save

Capital One 360 Bonus – Free $50 and $25 Bonus

03.12.2012 by Matt Jabs //

Capital One 360 savings accounts present us with a very solid and useful savings platform.  In fact… I liked it so much I opened and account and have all our savings with Capital One 360.  My advice is for you to do the same.

Free $50 Bonus Links!

Capital One 360 is offering a free $50 bonus to all new customers who open an Capital One 360 checking account.

  • $50 bonus for Capital One 360 checking account

There are no ATM fees, no monthly fees, and no account minimums. All you have to do is open a new Capital One 360 checking account and make a total of 3 card purchases within 45 days. Your $50 bonus will automatically be deposited into your account on day 50.

My Capital One 360 Savings accounts

Use the Orange account savings for setting up savings goals for yourself and/or family.

  • Capital One 360 Savings account

Here are screenshots of my Orange account savings:

My Orange automatic savings plans

Another benefit you will want to take advantage of is the Capital One 360 automatic savings plan.  Use this feature to set up automatic monthly contributions to each of your Capital One 360 Savings accounts to put funding your savings goals on autopilot.

Here are screenshots of my Orange automatic savings plan contributions:

The Capital One 360 account savings is awesome.

My wife and I use accounts very actively and advise you to do the same… you will be happy with how much it helps you save!

Categories // Savings Tags // ing direct, Savings

Thoughts On Spending and Saving Money

03.02.2012 by Matt Jabs //

Just a couple interesting things I’m investing in or saving money on lately.

Investing in the right shoes

I have weak ankles from years of playing full-court basketball.

Rather than isolate and weaken them further by wearing ankle braces, I’ve been looking for ways to strengthen them.

Enter barefoot trail running.

I hate blowing money on anything, but since I’m a proponent of investing in yourself (health, skills, etc.) I have no problem investing in a great pair of utility shoes that get me back to more natural movement while building ankle strength. That’s why I’m going out to buy these shoes as soon as I publish this article (did the research and love what I see).

I’m excited to see how these handle all the hiking and trail running I’ve been doing lately.

I’ll keep you posted.

MovNat.com – explore your true nature

MovNat.com is a website dedicated to something I have known to be right all along: natural exercise in lieu of gyms and a bunch of expensive equipment.

Much of it is done simply in shorts and bare feet (I’ll be doing it in my new shoes).

The MovNat website describes it as “an effective fitness system based entirely on using the full range of our natural human movement abilities such as walking, running, balancing, jumping, crawling, climbing, swimming, lifting, carrying, throwing, catching, and self-defense.  MovNat is for everyone, it is progressive and safe, and supports physical competency and conditioning for any area of life.”

They teach 13 basic movements that exist within 3 basic movement categories.

Simple, basic, natural, and inexpensive. I love it.

Owning vehicles

A few days back I made the announcement that we’re going down to one vehicle.

Originally we were going to sell both the 2000 Jeep Cherokee and the 2002 Grand Prix to purchase a used Pontiac Vibe.

We changed our minds.

Now we’re just going to sell the Grand Prix, keep the Jeep, and rent cars for long trips.

Keeping the Jeep instead of buying the Vibe will save us around $4,000.

Renting a high MPG car for trips will save us tons of money on gas, and save us from having the expense of owning 2 vehicles. We’re going back to Michigan in early April and plan to rent a Ford Focus or similar vehicle with great gas mileage, then just turn it in when we return.

Owning just one vehicle will save us hundreds every month on insurance, repairs and maintenance, fuel, and plates/registration costs (taxes).

What changes are you making?

What things are you doing to change your life for the better?

What purchases investments are you making in yourself?

What are you doing to earn more and spend less?

*******

Categories // Investing, Savings, Simplify, Spending Tags // ideology, Investing, save

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