Author Topic: All cash, no investments, unclear future.  (Read 3506 times)

Magic Mocha

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All cash, no investments, unclear future.
« on: April 13, 2015, 10:02:50 PM »
Hi all,

I'm a 24 year old Technical Writer in the DC metro area earning $46,000/yr gross + benefits. I have a surplus of cash ($25,000) sitting unused because I'm not sure how much I might need in the future, or I feel there's something I'll forget to account for. Frankly, I think I'm a little irrationally afraid of losing my comfy cash blanket, even though I spend somewhat frugally as if it doesn't exist.

Currently:
  • I have a paid-off car (2008 Mini Cooper with only 80k miles in good shape), though I take the metro to work almost every day.
  • No debt
  • Currently renting and saving ~40-45% of take-home income ($2,640/mo).
  • I own a nice bed, dresser, computer, wardrobe, and laptop.
  • I've been at my job for 9 months. It's not bad (especially since I only have an English BA and a CS minor), but government contracting isn't exactly my dream, and I feel like now's the time for exploring career options.

Future:
  • I plan to move closer to work and bike/walk commute in July.
  • Over the next year or two, I hope to hone my writing, coding, and HTML skills in my spare time to enhance my appeal to employers.
  • I want to move to a new city in the next year or two, though I'm not sure where yet. DC/Arlington is okay, but I want to try someplace new. I plan to spend the next year or two spending PTO visiting cities that appeal to me (Seattle, Austin, San Diego, Portland, Atlanta) to get a sense of them. This will also take a bit of money.
  • Ideally, once I find a place I like, I'll apply online for jobs in the area, and move only once I have a job.

Question:
I've read plenty of MMM, Random Walk, etc. to know and trust index investing. However, they only work if you put your money in and don't touch it for upwards of 10, 20, 30 years. I have more than enough for well over 6 months of living, but I can't help but think I should hold onto more than that, in case of a future down payment, job loss, totaled car, etc.

Should I keep ONLY 6 months' worth of expenses in cash, and put everything I save into Vanguard at the end of each month?
Should I keep 6 months + $5-10k to be extra safe?
Should I routinely keep a percentage of each month's savings in cash?


TL;DR How big a cash buffer should I have if I hope to move cross-country in the next 1-2 years?

P.S. I'm open to advice on non-financial fronts about this plan as well, if anyone older and wiser wants to take pity on a confused young adult.

MDM

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Re: All cash, no investments, unclear future.
« Reply #1 on: April 13, 2015, 10:26:43 PM »
Question:
 I have more than enough for well over 6 months of living, but I can't help but think I should hold onto more than that, in case of a future down payment, job loss, totaled car, etc.

Should I keep ONLY 6 months' worth of expenses in cash, and put everything I save into Vanguard at the end of each month?
Six months is a defensible amount.  You can "what if?" yourself to death debating amounts more or less than that, and if you decide on a little more or less than that (e.g., anywhere from 3 to 9 months), who's to say you would be wrong?  Need hindsight glasses to know for sure.

Other thoughts:
 - Do you have access to a 401k with employer match?
 - Investing in a Roth IRA allows you to withdraw up to the amount of your contribution at any time without penalty - provided of course that the account is worth at least as much as you contributed.

sirdoug007

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All cash, no investments, unclear future.
« Reply #2 on: April 13, 2015, 10:45:23 PM »
I think you've got the right idea of taking 6 months expenses for an emergency fund and investing the rest in index funds.

If you have a 401(k) start on that or I would recommend a traditional deductible IRA while your income qualifies.  Deferred taxes are a great thing for a mustachian as taxes on just the money needed in early retirement is usually less than a 10% effective rate (if spending is <$40k).


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« Last Edit: April 13, 2015, 10:47:19 PM by sirdoug007 »

Cpa Cat

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Re: All cash, no investments, unclear future.
« Reply #3 on: April 13, 2015, 10:46:10 PM »
Ok, so don't invest your $25,000. Stick some of it in CD's or TIPS or something, maybe.

But you're saving 45% of your income. Start investing that. Start by maxing out a Roth this year and every year. Grab up some 401k match if you have it. Remember that you can withdraw your contributions from a Roth penalty-free.

Store the extra there... invested in something. If you really had an emergency, you could withdraw from it.

You're talking about the improbable what-if scenario of burning through $25,000 and then needing another $5,000. If that actually happened to you AND it happened at a point where the market was down, then it's not going to be the end of the world if you sold something in your Roth at a loss and took it out.

mrpercentage

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Re: All cash, no investments, unclear future.
« Reply #4 on: April 13, 2015, 10:46:39 PM »
6 months sounds good. If you must leave it in a savings account pick a high interest savings like barclays 1% apr.
https://www.banking.barclaysus.com/online-savings.html

Did you know if you invest in SPY (S&P 500 ETF) just Mar15-Apr29th each year it would have gained 13 out of 15 years.
Or that if you invest just Oct-Apr you will reduce your exposure to losses while maximizing returns. There is no guarantee but Mar15-Apr29th Im personally "All in".

I view good investing like good sex. Its best when you leave half in and move the other half in and out at the right time. Take your time, don't rush-- Pay attention to the seasons (rythim)of the market and pull out if you think there is a chance you will lose your whole load.

Magic Mocha

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Re: All cash, no investments, unclear future.
« Reply #5 on: April 13, 2015, 11:46:28 PM »
Thanks for the great replies! And yeah, I think I'm prone to "what if?"-ing too hard every now and then.

More details on tax deferral: I employers match 401k up to 3%, and I'm currently contributing a measly 5%. I might bump that up another 5-10%.

No Roth or normal IRA. I'm leaning towards Roth, given my concerns about early withdrawal and simplicity of after-tax dollars.

I'll look into Barclay's as well.

okits

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Re: All cash, no investments, unclear future.
« Reply #6 on: April 13, 2015, 11:51:33 PM »
How about investing most of your cash and taking out a line of credit at a reasonable interest rate for "just in case"?  Your $2640/month should go a long way towards covering expenses to visit other cities and the eventual move.

ETA: it sounds like you are doing well and have a good head on your shoulders.

Trifele

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Re: All cash, no investments, unclear future.
« Reply #7 on: April 14, 2015, 03:49:02 AM »
Mocha -- +3 on the Roth IRA.  You need to be doing those.  AND -- if you have not already maxed one out for 2014, you can still do so today.  The deadline is tomorrow.  Then you can turn your attention to 2015.

You sound like you will do great. 

mozar

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Re: All cash, no investments, unclear future.
« Reply #8 on: April 14, 2015, 06:49:36 PM »
You shouldn't pull out if you think you will lose the whole load, you should ride it out. Whomp whomp.

mrpercentage

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Re: All cash, no investments, unclear future.
« Reply #9 on: April 14, 2015, 07:29:21 PM »
You shouldn't pull out if you think you will lose the whole load, you should ride it out. Whomp whomp.

Ha! Only way to truly multiply but if you picked the wrong girl she will take you for all you are worth :)