Author Topic: 2 months/year with no income-how to save?  (Read 4213 times)

Epimer

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2 months/year with no income-how to save?
« on: February 07, 2015, 10:35:02 AM »
Hi All, I'm new here and my mind is blown by everyone's badassitty. My husband and I are both college professors with 3 kids on a 10 month salary. We are not paid during the months of July and August. Our current approach to funding our summers off is to just have 25K sitting in our low yielding (0.75) savings account as an emergency fund throughout the year and as our liquid income replacement during the summer. Honestly, this is more than we need, but we are paralyzed by our conservative savings ways and are beginning our paradigm shift with this site. There has to be a better way to make more interest on this money. I'm afraid of committing to any accounts that are too long term since we need some of that money every summer. I was thinking it might be worth the early withdrawal penalty if the return was high enough though. Any suggestions??

Gin1984

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Re: 2 months/year with no income-how to save?
« Reply #1 on: February 07, 2015, 10:39:50 AM »
Do you really spend $25,000 every summer?!

AlwaysBeenASaver

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Re: 2 months/year with no income-how to save?
« Reply #2 on: February 07, 2015, 11:02:00 AM »
Calculate your monthly budget such that you are only budgeting 80% of your monthly salaries during the salaried months. By budget I also mean including savings amounts in your budget. This should leave you the 20% left for the 2 summer months which if my math is correct would give you the same amount for each of those 2 months that you're budgeted for. For example:

monthly salary minus taxes/etc.: $5000
monthly budget including savings: $4000

After 10 months, you'll have 10,000 left over, which will fund your $5K budget for each of the 2 non paid months. Your personal discipline will determine whether this 20% can be left in your checking account or needs to be set aside somewhere for safe keeping.

Gin1984

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Re: 2 months/year with no income-how to save?
« Reply #3 on: February 07, 2015, 11:08:41 AM »
I'd just keep the money in the stock market and/or your normal investment vehicles.

Since you have 3 kids, I'm assuming you're at least 27. With two adult workers at that age, you could easily have at least $350,000 in invested assets. With that level of savings, even in the case of a dramatic stock market crash, you'll still make it through the summer just fine, so there's very little to worry about.
I'd not be comfortable putting money in the stock market, just to pull it out every 10 months.  Cash is there for short term expenses for a reason.  Yes, her EF could be in stocks or bonds but a known lack of pay for two months is not an emergency. 

Epimer

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Re: 2 months/year with no income-how to save?
« Reply #4 on: February 07, 2015, 12:15:03 PM »
Gin1984, no, we spend more like 10K each summer. The 25K was a number we arrived at by doing a rough calculation similar to what alwaysbeenasaver suggested since 25K is about 15% of our income, and we don't work 16% of the year. After reading this site, I'm learning that might be unnecessary.   I guess I can keep 10 K in checking, then put the other 15K in stocks?  What do you do for emergencies, just suffer any withdrawal penalties?  We 403b, 529, and IRA accounts,  but those are for long term savings. Are their accounts you are happy with for your emergency fund?  I'm new here, so I apologize if this is a dumb question. I'm sure there is a better way to keep an EF than in the checking account. Thanks for your input!

Gin1984

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Re: 2 months/year with no income-how to save?
« Reply #5 on: February 07, 2015, 12:25:56 PM »
Well most people here have a large difference between their spending and their income so as long as they don't lose their jobs they can handle most emergencies by just need saving as much that month.  Personally I am much more risk adverse and have a lower income so that does not work for me. 
We have one month's spending in cash in a high yield savings account.  The rest is still in cash but is in a Roth IRA because if we don't end up needing it then I can convert it to investments (basically it allows me to save more in my Roth). 
If I were you I would put $10,000 in a high yield checking and the $15,000 in an investment account (you are maxing out your 403b/IRAs right?) then every month put aside $1000 for "summer savings" in cash.  At the end of the summer any excess can go into the investment account.

Epimer

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Re: 2 months/year with no income-how to save?
« Reply #6 on: February 07, 2015, 03:11:15 PM »
That sounds like a much better plan than what we have been doing. Thanks!

Cwadda

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Re: 2 months/year with no income-how to save?
« Reply #7 on: February 07, 2015, 03:51:27 PM »
1. Have you tried asking if you can receive the money over 12 months instead of 10?
2. Can you pick up teaching some summer classes (especially online ones) to get some income?

lise

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Re: 2 months/year with no income-how to save?
« Reply #8 on: February 07, 2015, 04:03:31 PM »
I work freelance and I am very conservative about investing so I don't feel comfortable having my emergency in anything in cash.  My emergency funds are in a high yield saving account.  I think you should lookout changing banks to earn a little more interest.  Have you looked at Ally?  You can easily transfer money from the two types of savings accounts they have in to the checking account.  I know MMM likes Capital One.  I've been very happy at Ally.

lise

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Re: 2 months/year with no income-how to save?
« Reply #9 on: February 07, 2015, 04:06:33 PM »
Also agree that you should keep the $10,000 in the high yield savings account.  What you know what you will spend.  Plus what your real emergency fund is (say $3000).  And then the rest you can look to invest in mutual funds that can easily be withdrawn if you need it. 

deborah

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Re: 2 months/year with no income-how to save?
« Reply #10 on: February 08, 2015, 02:16:14 AM »
Another thing you can think about is trying to move expenses away from July/August, so that these months are your cheapest - yearly payments can often be moved by a month or two by paying for a couple of extra (or a couple less) months once to get you into a different part of the year - you can often arrange this.