The mechanics of withdrawing money from your pots of gold

[SassyDenim]

Some background: my husband refused to go along with my plan for getting us out of debt unless I agreed not to touch his precious $36,000 SUV (on his at the time $32k a year salary mind you). So to show good faith, we paid that off first -- despite the fact that it was financially more advantageous to pay off other debts first. It worked! He didn't hassle me at all. Not once. We are now only $22k away from being debt-free except for the mortgage. I don't want to lose our momentum.

He doesn't want to go along with the Mustachian way.  He and MMM both being avid bikers didn't budge him. So I thought I'd wash rinse repeat. He's a gadget fan. But not horribly so. I want to show him that to have a brand new $100 Apple TV every five years for life, we would only need to save $550! I want to show him how easy and simple it works with the Apple TV to start and then save for a few other gadgets. I know once we have that money saved, he will go along with the rest of my plan because he will know that he won't have to give up what's important to him. And honestly our plan works for me because saving $800k or whatever is too daunting. I can do smaller goals. And besides, saving for fun stuff is a lot more fun! After saving for the fun stuff, saving for the necessities will be habit.

So once we have the $550 and we purchase the dividend paying stocks (I'm not asking you how to choose the investment), what do we do with the payouts? $550 x .05 (earnings after accounting for inflation) x .8 (my tax number that makes me feel better -- right or wrong) leaves $17.60 a year or $4.40 a quarter.

What do I do with the $4.40 when this is my only investment? Do I reinvest since I don't want the money for five years?

If not, what do I do with the $4.40? Stick it in my savings account formerly-known-as-ING for five years?

If so, in five years do I sell some stock to get what I need? If so, how do I account for the fee I will incur when I sell? For that matter, how do I calculate the buying fee? (Meaning how do i work this into the formula I use for divining how much I will need to save.) For this particular $550 stache I'm going to wait to buy it all at once. But when I have bigger staches what do I do? Meaning is there a cutoff? If I'm working on my $15,340 iphone stache for two, Should I wait till I have $1000 (or whatever) saved to buy a batch of dividend paying stocks if I can only save $300 a month during a few bad months? I don't want monthly purchasing fees to eat away at any profits I would make. How do you calculate what the minimum amount of stock bundles to purchase? Obviously if I have a really bad month and can only save $20 I'm not going to spend $5 to buy stocks. So where is more middle ground?

He will need money from the $15,340 iphone stache in a year and a half. How do we handle the dividend payout? Any differently since the money is needed sooner?

We plan on having more and more staches as time goes on. Of course the first few staches will be in dividend paying stocks now and as the money becomes significant we will need to diversify.  So once we diversify, what do we do with the money from a bond, lets say, when there is only one payout a year? What if the money is in an index fund?

I'm just after the mechanics of this I guess. I've read all the dividend sites I could find, but they mostly talk about what dividends to buy. And they are waaaay over my head. I can find asset allocation information, but can't find anything on how to organize the money withdrawals. Everything talks about how much to withdraw but not how. Once I have a sizable stache with dividend/stocks or bonds outside a fund and also in a fund, How do you determine from which pot of money to withdraw from?

I think I need to understand the withdrawal mechanics in order to determine how I will go about buying the investments. Thanks you guys for getting through such a long question. I have no idea  how to be more concise.

[dragoncar]

I wouldn't micromanage or earmark payments like that.  Money is fungible (http://en.wikipedia.org/wiki/Fungibility).  Thus, you withdraw/sell your pots of gold as needed, and spend it, as long as your expenses are under 4% (or whatever your SWR is).

[SassyDenim]

I have never heard of that word before. Thank you for the link. 

[Cecil]

I don't earmark staches.

We make a bunch of money, we spend less than half of it. Every time my bank account balance gets too high, I drop 3 or 4 thousand into whichever investment account needs it and buy an index fund.

The individual piles are for goal-accomplishment only (Hey, our 'stache is enough to cover our food bills now!)

[worms]

Hmmm! Interesting!  I think there is something deeply psychological about different people's approach to this.

I do find it helps me if I micro-manage nominal allocations within different accounts.  For example, at the moment my credit card is showing a debit balance of £81, which will be cleared at the end of the month.  But in my accounting system that is made up of about £700 of old debt >120 days that I am still working off, about £700 of holiday costs from a trip I just made, a credit of about £150 on my monthly fuel allowance and a balance of around £1200 on my forward provision for household bills.  Yes it is all fungible, which means that, while I am technically debt-free I can keep the old debts in view and not risk losing the incentive to save extra to pay them off.

The long-term investment pot is another matter and it has a single aim. But there are elements of it that have not yet been subsumed into the main pot - I don't see it as worthwhile paying brokers fees to drip feed into the market, so the monthly additions are sitting in another vehicle until they reach a suitable level (and a buying opportunity arises). But since this vehicle only takes round figure additions, there is another element waiting in my emergency fund account to be added when it reaches the right level - so again, the emergency account is micro-managed within a single funged amount.

What can I say, this approach is not for everybody? I'm a nerd? It's a hobby?