What do I do with all this cash?

Sorry, I know that's a silly question, but I just got myself to thinking (uh oh).  So, after over 3 years of being scary cash-poor and somewhat buffered, with a new job and an unexpected bonus, I've been able to build up savings over the past year.  Now I have an inheritance (but some new expenses came with it).  So I siphoned off a chunk of cash (and have the rest appropriately invested) to cover various true expenses.

I beefed up income replacement, put a chunk aside in case all our appliances die at the same time, and made a really big deposit into the home improvements and repairs category because that is a near term priority.  Then I made a large charitable contribution, and put money aside for legal fees, taxes, new insurance, and the most important one - a year's worth of payments on my kids' private school tuition. I still have money in a holding category that I can add to car repairs (it has around $1k right now) or start car and computer replacement categories (or take a vacation?).  I also even started paying CC's on due dates instead of closing dates to keep more cash on hand (but my checking account pays next to nothing).

So I'm like, over 300 days buffered right now, but know some of this money will slowly whittle down by about 20-30% over the next 18 months and have a cash flow spreadsheet to roughly project it.  But in the meantime, do I just keep it in an Ally savings account at 2.1%?  I'm wondering if I should look at some CD's, but I'm scared I won't figure it right and I'll suddenly need the money.  Ally has the No-Penalty CD though.  I have accounts at Ally and Capitalone360 so they would be convenient.  

I know this money will eventually be spent, and it's not meant to "grow" like my investments (although a raise could surprise us), but it just seems weird to have so much (well over $100,000) in one savings account.  Should I look at some cash-based diversification to beat Ally's savings, or just leave it there nice and handy?

Thank you all :)

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    • Superbone
    • YNAB convert since 2008
    • Superbone
    • 1 yr ago
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    If you're going to be using it within 5 years, there's not really a lot of options. Short term CDs are an option as long as you don't need the funds during the terms you choose. You could increase your return a little with Vanguard's money market fund VMMXX which is currently returning 2.36% after fees. This is where I hold the bulk of my cash for now. I've gone away from CDs as I don't like my funds locked up and there have been opportunities I've missed out on because of it.

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    • Superbone
    • YNAB convert since 2008
    • Superbone
    • 1 yr ago
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    Also, I wouldn't worry about too much in one savings account. FDIC insures you up to $250,000.

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    • Superbone
    • YNAB convert since 2008
    • Superbone
    • 1 yr ago
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    At the minimum, since your money is already at Ally, you should be in their no-penalty CD where you'd currently get 2.3% for any CDs of $25,000 or better.

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    • MsTJ
    • YNAB has given me back my future
    • Believer_in_YNAb
    • 1 yr ago
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    Same issue I'm having, though not to the extent you are.  Wish there was some direction from YNAB, and if there is, I haven't found it.

    What I'm thinking about is: What could come up?  When I started budgeting with YNAB I thought having $50K available would be a good amount of cash to hold so that is what I'm working with.  Believe that would be enough to handle one of my largest possible true expenses or many of the smaller items.  

    I am just coming to the $50K place I dreamed about.  I want a 5 year CD ladder.  CD's were paying better than the high yield savings account earlier this year .  Today, my HYS account is paying about the same as CD's but doesn't lock up the money, for any length of time and it's FDIC insured.  Interest rates are supposed to go down soon so that isn't a great investment today.  Would it be better to lock up money today, at less than 3% and get that return guaranteed or stay in cash and hope that rates don't go negative, like the rest of the world?   Which way do you think rates are going?

    Then there is the stock market.  Which way do you think it's going?  I'm not sure.  Returns are down, and believe prices will follow soon.  Prices haven't done anything for the past year and a half.  Then again, there is dollar cost averaging which says just invest $x every month.  Historically, that has been the winning way to go.  

    I'm currently splitting my monthly excess between debt pay off (mortgage at 7.25%) and cash savings.  Believe paying off my mortgage is the best return anywhere today at 7.25%.  Hopefully, soon, something will change and there will be a clear cut place to invest.  For today, maybe keeping cash isn't such a bad place to be?  

    Have been thinking about this for the past couple of months and haven't come up with any place I really want to invest.  Cash works for me today.

    Like 1
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
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      MsTJ It's really easy. Fund all your regular and True Expenses (includes the car/medical/home maintenenace/repair as well as replacements) every month so they are on target for their goals and have an adequate Income Replacement fund. This gets your budget in the right place. After that, any remaining money is gravy.

      When you get to that point, put the money to work. Max out all available tax advantaged accounts, and then either invest in taxable and/or pay the mortgage, or beef up categories in your budget to accomplish them sooner.

      Also, stocks have not done nothing the last 18 months. Total return with reinvested dividends for someone who invested $10k at the start of 2018 in Vanguard Total Stock Market Fund is up to $11,361 as of yesterday, so the CAGR is about 8.25%. Someone starting with $10k and adding $100/month would be at $13235 and have a CAGR of 20.5%. Neither of those numbers are shabby.

      The annualized internal rate of return for my personal investments just in 2019 is 15.23%. We're a little bond heavy on the contributions to investments because I'm sitting on cash that would normally have been invested in stocks as we are preparing for a cross country move and haven't sold the current house yet.

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 1 yr ago
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      MsTJ I agree with everything nolesrule said and follow the same philosophy.  This cash I'm trying to allocate is in a spectrum of true and emergency expenses that I'll need, but over a period of time.  It has a relatively short-term scope.  The "real" money is invested in a moderately aggressive portfolio for risk-adjusted growth.  401k, HSA, and ESPP (employee stock purchase plan) are all contributed to to the max.  

      Your YNAB budget comes first, including income replacement, but don't lose sight of the returns that growth and tax advantaged investments can bring.

      Like 1
    • Technicolor Cheetah
    • Not sure when I became a cheetah...but I'll run with it
    • technicolor_cheetah
    • 1 yr ago
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    If you want the money moderately liquid, you could consider a smaller CD ladder.  My financial advisor suggested that I put our income replacement money into 4 quarterly CDs and my date of buffering is large enough I can wait a few months until a CD matures if I need to.  They pay a little better than my Ally Savings account.  Other people have suggested I bonds but I know nothing about them.  My issue is that I have a good chunk of days buffered right now not counting the income replacement as that's off budget.  I'm leery of investing it since if I invest $5000 meant for the roof, it needs to still be $5000 when I take it out.  OTOH, if I open a CD every month with say 1/20th of the money, I'll still have a decent cash reserves until one or more CDs matures.  The issue with that is that's a ton of CDs and that's perhaps a level of complexity I don't need.  I should learn about I bonds.

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 1 yr ago
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      Technicolor Cheetah I don't want to mess around learning about I bonds right now either.  I don't have a 5 yr time horizon right now anyway and I know there's enough fixed income holdings going on in my portfolio.  When I get back from a short family road trip next week, I'm gonna play with numbers more and see if trying one of these CD ladder setups might make sense.  I'm sure there are worse things I could cause a financial disaster with :D. 

      Like 1
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
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      Technicolor Cheetah I tried  CD ladders, but it became too many accounts to track, and the rates aren't all that much better than other fully liquid cash and cash-like choices. Reaching for yield through CDs in small increments isn't really worth the layer of effort required for the small amount of increased interest.  I would keep it simple.

      1) Use High Yield Savings accounts - basic, FDIC insured, easy

      2) Open up a Vanguard Brokerage account and use a good money market funds. If you live in a state with income taxes, some of the interest may even be non-taxable.

      VMMXX - Vanguard Prime Money Market ($3k initial minimum)

      VMFXX - Vanguard Federal Money Market (also used for the settlement fund, so no need to actually make a purchase)

      VUSXX - Vanguard Treasuries Money Market ($50k initial minimum)

      They have minimum initial purchase amounts, but you can drop the balance below that as long as it doesn't go to zero to continueadding in any increment.

      3) I Bonds - I do like them as they are tax deferred, state tax free and inflation protected, but the 1 year illiquidity and 5 years of 3 month EWP might not make them ideal choices depending on the needs.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 yr ago
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      nolesrule Is there any tax advantage to using VUSXX over VMMXX? I tried to research it but didn't come up with anything. As far as I can tell, there's no tax advantage. I'm in California if that makes a difference.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
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      Superbone VUSXX is 100% interest from federal government obligations, so there's no state taxes. You'd have to run the TEY calculation to compare, as VMMXX is partially taxable, but I don't know California's rules on that.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
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      nolesrule Thanks. I made the switch after some research. It's not like it's a huge difference in the scheme of things but every bit helps.

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
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      MXMOM I’ve had all those same thoughts, and run the same calculations.  I have a tendency to overthink and plan and then work backwards untangling my machinations to simplify back to reality. Honestly, everyone got me thinking when I read how many of you pay bills at the last moment to try to grab a few extra pennies or dollars of interest, and I thought I should be doing the same, because I’m the last person to leave money on the table.  But I’m so attached to my local college credit union which has (almost) never let me down that trying to find a decent interest paying checking account would, I know, cause me more headache than it’s worth. 

      Whatever I choose with the savings will probably be somewhere between very conservative and status quo.  Thank you for the reality check :).

      Like 1
      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
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      Annieland Most of the online banks are very good in regards to checking.

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
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      nolesrule 

      I’m going to take a look at those and compare to the ones I have available at Schwab right now. I know they have a $20k min cash fund now at Schwab but I forget the yield.  I rolled over hub’s last 401k that was at Vanguard to Schwab last year, so I prob would have to open a new account. It’s nice having options, and hopefully by the end of the summer I’ll be closer to having things figured out.  

      Question for you - how do you manage to so rarely have to pull money out of longer term savings accounts?  I tagged you in another thread but it probably got buried. I’m trying to make better use of the running checking balance in the toolkit to schedule future CC payments and keep it out of the red. Maybe the difference is as you’ve stated, you spend much less than you earn.  I don’t know how you manage that with kids :). I’ve taken much of your posted advice over the years and it’s always been so useful!

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 1 yr ago
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      Annieland If you already have an account at Schwab, you're pretty much done. Their checking account is second to none in terms of fees and service. It doesn't pay a ton, so you do need to keep money carefully sitting in savings, but the account is exceptional, especially if you are an international traveler. 

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
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      Annieland 

      Yeah, I've heard good things about the Schwab checking account. I have no experience with them.

      Vanguard does have the best MM funds of all the brokerages, so if you do want to use them, then yes you'd need to open a Vanguard brokerage account.

       

      Annieland said:
      Question for you - how do you manage to so rarely have to pull money out of longer term savings accounts?

       Cashflow. All my income goes into my checking account. All my expenses directly and indirectly come out of my checking account (by indirectly, I mean they go on credit cards, and the payments come out of the checking account). I always keep my next credit card payments accurate in YNAB based on the balances (this one is fairly important). I make sure my future/scheduled transactions are always accurate in the checking account. I set up our paychecks multiple times with a 4/week or monthly frequency so that they always appear the correct number of times per month.

      For the record I still use YNAB4, but the above should work as described using nYNAB with the toolkit. The one thing I dislike about the nYNAB version of the analysis is that you can't look at it without the future income scheduled transactions.

      By looking at the future running balances, I can see the projected checking account balance. I can use this information to determine if I can move money OUT of my checking account while leaving enough padding for the unexpected. For example, right now I can see my checking account balance will get me through the end of the month ignoring future income (of which there will be 2 paychecks for me and 1 more for Mrs. nolesrule).

      Since you can't ignore the future income using the nYNAB version of this method, my recommendation would be to leave some extra padding in case of a payroll error.

      Like 2
      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 1 yr ago
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      nolesrule said:
      I always keep my next credit card payments accurate in YNAB based on the balances (this one is fairly important).

      Ayup, says she who bounced the crap out of May's payment because she accidentally had April's statement balance in the YNAB register. But fortunately I called Chase the day it was supposed to happen, explained to them that they were actively preventing me from making the payment with a different account (they would only let me pay the difference), and then followed up with both Chase and Schwab over the next week. It was a PITA but I got all the various fees refunded. 

      Like 1
      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 yr ago
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      WordTenor As you know, I have a Schwab checking account. What you don't know is that I currently only use it for ATM withdrawals where I would have to pay a fee otherwise. I switched my main checking account from a local credit union to a Chase checking account over a year ago to get their (sizable) bonus.

      I'm currently giving serious consideration to switching my main checking account over to my Schwab checking mostly because of the 0.4% return on your funds versus the 0.0% I'm getting now. However, my average checking balance is $6000 so I'm not sure if $24 a year is worth the PITA that would be required to make the switch as everything flows through my checking account and I'd have to move all payments. I'm also having a little hang up about my checking account being online although I've been using online savings forever so it's probably silly that I'm scared of not having a B&M bank to go to.

      I guess I'm just looking for a little reassurance to make the switch.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
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      Superbone  I'll reassure you. As you know I've been using Capital One 360 nee ING Direct nee Netbank as my primary checking account for almost 20 years. The only downside is if we had the need to deposit cash, which we never do.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
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      nolesrule Thanks for that. From what I’ve read, even the cash thing can be gotten around by converting it to a money order or cashier’s check for a small fee.

      It’s going to take some strategizing and time to make the switch. Probably the best way to handle it is to move a chunk of cash from savings to Schwab in the meantime while I switch over payment accounts and direct deposit. 

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    • nolesrule For those that do have a need for cash transactions, just keep a local credit union account open. Their minimums required to defray fees are usually nominal. Tie it to your primary account for transfers.

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      • Superbone
      • YNAB convert since 2008
      • Superbone
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      spammagnet Oh, yeah. I still have my credit union accounts. Cash issue averted. Thanks for the reminder! Now I have no qualms about making the switch.

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      • WordTenor
      • I have the honor to be your obedient servant
      • WordTenor
      • 1 yr ago
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      Superbone I’m going on year 5 of no local checking account. Yesterday I was able to accomplish the one thing that I find difficult, which is getting a large denomination bill to give as a gift, by asking the customer service counter at my grocery store. 

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      • Superbone
      • YNAB convert since 2008
      • Superbone
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      WordTenor That’s great to hear! I went for it. A couple hours later and I have everything moved over. ADP even allows me to change my direct deposit online! Of course, now I have to watch everything like a hawk and make sure everything goes in and out of the right places during the transition. The cool thing is that YNAB’s recurring transactions made it easy for me to go down the line, one by one, and get everything moved over.

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 1 yr ago
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      nolesrule Ok, I'm back from my trip to visit my gazillionaire extended family on the east coast and now my chasing of a few dollars of interest feels really pathetic.  I have to wash my brain of the 9 figure wealth I just saw and get back to focusing on my relative pocket change.

      So yeah, I just started scheduling income in the checking register.  Since my husband gets paid 2 different paychecks a month I have them on alternating schedules so they all show up anyway.  Unfortunately, my gray number after the july paychecks up there is $19.08 right now.  So I'm gathering that is not an ideal cash flow situation, especially since I've always paid my mortgage on the 1st of the month.

      I guess it'll be awhile before I don't have to pull money out of savings...

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 1 yr ago
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      Superbone Well, you are much braver than I am!  But personally, if you knew my situation (I touched upon it in another post somewhere), the last thing I should be doing is making any more major banking changes.  And I do occasionally deposit large sums of cash.  I have a side concessions business where I end up with a full cash drawer at the end of a weekend that I need to get into an account pronto.  I'm actually surprised at how many times I've had to walk into my CU branch in the last few years for one thing or another.  Maybe in a year or so, depending on how interest rates (and my stinkin' cash flow) goes, I might look at the scenario you have.  Good job!

      Like 1
      • Superbone
      • YNAB convert since 2008
      • Superbone
      • 1 yr ago
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      Annieland Thanks for starting this thread! I myself got two things out of it. I changed my money market fund and changed my main checking account. I'll be able to phase out my old Chase account after a month of everything being switched over and working which will simplify my overall financial life while improving my return even if ever so slightly.

      And don't allow your "gazillionaire extended family" to affect how you optimize your finances. We're all on our own paths. There is nothing pathetic about what you are trying to accomplish.

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 1 yr ago
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      Superbone Yay!  I can't count how many ideas I've gotten from forum discussions.  

      And I went and made a crazy decision that somewhat draws from everyone's advice, and then of course, veers way off 🤣.  After lots of calculations and projections, I put $60k from Ally into a new Schwab Intelligent Portfolio, with an income target and allocation.  Partly because I just want to play with something new, instead of a CD ladder that is safer but still makes me nervous about accessibility.  It's only 15% equities and the rest fixed income and cash.  If I like how it goes, I will have some more to add soon, but Ally cash is still healthy for emergency and upcoming expenses. 

      I dunno, I worry about everything, but I still can't be happy unless I have a little something at risk.  Of course, tracking it in YNAB will be an exciting endeavor too.  I want to try keeping it on-budget, so I'll find a way to manually keep it in line somehow.   God forbid I simplify something, even when I promise to, right?  🤪

      Like 1
  • Annieland Have you considered any robo-type investing?  I recently put a chunk of money into one called Betterment, which I actually learned about here. They have financial consultants who help you customize investment strategies, depending on where you are in life, what your priorities are, etc. In my previous life I was an institutional bond trader in NYC so I do know a fair bit about the market, but I'm done trading. At this point, I want to set priorities, hand the money over to someone who probably knows more than I do currently, and not look at it from day to day. I looked at a bunch of these robo trading places and decided on Betterment for a couple of reasons, which may or may not be relevant to your situation. But it might be something for you to look into, given your situation.

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      • Annieland
      • YNABbing every day since 2009!
      • Annieland
      • 1 yr ago
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      KnitPurlKnit Actually, yeah.  I have a couple of Schwab Intelligent Portfolios for Roth IRAs. Had them for over 3 years.  They’re in a 95% equity allocation, but I could look at the reverse option, out of curiosity.  I really like them for the first couple of years but then they went flat for the latter half of 2018 while the overall market was still rising. I still haven’t quite figured out what happened there and plan on going over that with a Schwab consultant after I get the inherited IRA figured out. 

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  • Assume that by "investing" the money safely, you could earn an additional 1% over the bank account rate you have now.  That's $1000 for one year. That assumes you don't use some of those budget amounts in that year. That's taxable income. So now we're down to $700.  Is it really worth it at this point of your journey to get more complicated for the sake of $700.  I say no. And really, everything suggested would only improve your return by 0.2%.  Which is $200 before taxes. Even more of a reason to not care.  But if you say yes, then the staggered CD would work.  I would base the terms on the dates you expect to use the money.

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
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      MXMOM That's why I suggested a HYSA or a Vanguard Money Market fund. It's so much simpler. I've still got 4 CDs open from trying to do ladders that will close in 2020, 2021 and 2022. At one point I think I had 20 CDs, and it was a pain keeping track of them. I was able to get out of many of them last November/December by taking the EWP hit, because Ally was offering an account funding promotion that earned enough bonus to overcome the lost interest spread plus EWP cost.

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      • MXMOM
      • MXMOM
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      nolesrule I know. I used to make things so complicated for the sake of a couple of dollars. No wonder my husband couldn’t be convinced to budget. Now it’s so simple. And for things like this now, I lean on the wisdom from Your Money or Your Life.: calculate what the REAL cost of something is by valuing your time. 

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      • nolesrule
      • YNAB4 Evangelist
      • nolesrule
      • 1 yr ago
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      MXMOM The ladder didn't take up a ton of time in the grand scheme of things, but looking at 20 additional accounts and sometimes posting interest was just a good way to make my end of month process more tedious. And it felt tedious.

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