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 :)
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.
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.
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.
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.
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.