Author Topic: Am I doing the right thing with the targeted pile of cash?  (Read 1310 times)

caracarn

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Am I doing the right thing with the targeted pile of cash?
« on: June 18, 2019, 12:19:55 PM »
OK, so I was seeing another thread about "how big is your emergency fund" and it raised up this related, but very different issue that my DW and I have.

Like most we have our emergency fund in cash, but in YNAB we really only have $3K dedicated to that.  For several years I was taking the stance of "I have a taxable Vanguard account that is where our surplus is going, and that is really our emergency fund", though it obviously is also calculated in our NW towards the RE goal.

In the last 18-24 months two big changes have occurred in our financial lives, we made a concerted plan to save more for our kids college after our oldest went and I started to navigate college finances and found that a lot of my assumptions about kids being able to get loans on their own were totally fantasy and had gone away decades ago, basically right after I left college.  So we developed a 10-year plan to save at least $25K per child for college to either help while they are in our help them pay off Stafford loans they took before we had the savings.  With 6 kids that is $150K total we are targeting.  The second change was more recent and that is me taking a job I can enjoy but at much less pay and my wife quitting her job at a school and going out independently so a much less predictable income stream.  Since we were unsure if things would pan out as we planned I kept a bonus I received along with savings that would have gone into the Vanguard fund in our savings account.

So what I have now is that we are just short of $9K for each kid 3 years into our 10 year plan, or around $47K in college savings (yes we have saved more, we are about 18 months ahead of the original plan).  Since we need these in the short term (read now, given that 3 of the 6 are college age and the other three are 3 years or less away) I thought about the best way to handle this and have not come up with anything better than leaving it in savings to ensure no loses of their college funds.  Then we have the extra bonus money from this year before I changed jobs and the deferred savings to make sure we can weather the job change and not have to liquidate index funds to cover bills and I have about $90K sitting in a savings account.   I was planning on seeing how we did at the end of the year, as her paychecks from the school will end in August, and we'll have had four months without them and also being able to see if the client pool is as large as everyone is telling her it is (so far it has panned out as she thought heading into the summer she's basically booked up for the 17 hours she was targeting a week, and seems able to add more students at will to throttle but she also wants to avoid working a lot more for the next 18 months because she is also trying to get her master's online) and then move that $30-40K into VTSAX then.  So we are losing 6 months of that for what I feel is some peace of mind, but is it really, as it's not as if I cannot get that money back if needed.  For a full analysis, the taxable account we'd be placing these funds in already has $100K in it that has been there more than a year, so even if we had to pull it all back we'd have $30-$40K that would be long term cap gains. 

My broader question is am I being foolish by not keeping the kids college stash in VTSAX as well?  What I want to avoid is having the kids college fund go away when we need it.  I can't help but feel there should be a better way, and I am just being too conservative, but perhaps in this case it is the best way to ensure no loss to their college stash.  Just as it keeps growing (at this point we are saving about $1,100/month and that will increase to nearly $1,500 in a year when my car payment stops) we will soon have more than $100K sitting around in savings for their college fund and my FI self rages against that not being in the market, but the purpose for these funds is not for me, so I feel it would be irresponsible to do that and then tell the kids their savings was gone when the next trade war happens.

Saving in Austin

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Re: Am I doing the right thing with the targeted pile of cash?
« Reply #1 on: June 18, 2019, 12:57:39 PM »
You probably should not have money you need within 5 years invested in the stock market.

Vanguard's money market fund (VMMXX) is currently yielding 2.37%.

reeshau

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Re: Am I doing the right thing with the targeted pile of cash?
« Reply #2 on: June 19, 2019, 02:45:51 AM »
You probably should not have money you need within 5 years invested in the stock market.

+1

Your optimization programs are flashing red alerts.  But in your story, 1/2 of the reason you are doing this is as a catch-up for lack of college savings.  Don't forget that primary goal as you are looking at returns.

Which comes to another point:  You are talking about having a surplus, but you also are at $9k of your $25k goal per kid.  Why not just commit this surplus to that goal?  If you mentally marked off "mission accomplished" for that, then you would have money you could then shovel into your investments, fully at ease.  Or, you could adjust your funding goal for your kids' education.

It looks like you have accomplished one of your goals.  You have $47k + 90k = $137k of your $150k 2nd goal, but you are freaking out.  Just finish that, celebrate, and move on.

Dragonswan

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Re: Am I doing the right thing with the targeted pile of cash?
« Reply #3 on: June 19, 2019, 05:52:22 AM »
I agree with the others.  Don't risk money you need in the next five years.  What you can do is put 75K of the 90K surplus in CDs for a 3 year term so it will be available when the youngest 3 head to college.  Comenity Direct bank is offering 3% for 3 year CDs and Ally Bank is offering 2.45-2.6% depending on deposit amount.  So even though it's not optimal stock market returns, you'd make a little something better than a regular savings account (around 2K a year).

caracarn

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Re: Am I doing the right thing with the targeted pile of cash?
« Reply #4 on: June 19, 2019, 02:33:04 PM »
Thanks for the feedback.  Right now my savings account is at Ally which is 2.2% interest without any limitations and in line with the money market and CD options. It seems if I want to squeak out a few tenths more I can do that.  Glad to hear you guys are seeing it the same way I had.  Makes me feel less guilty for having money sitting on the sidelines.  I think if I read the feedback right, I'm not really doing that so I need to change perspective and understand this is working as it should.

reeshau

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Re: Am I doing the right thing with the targeted pile of cash?
« Reply #5 on: June 20, 2019, 02:23:00 AM »
I think if I read the feedback right, I'm not really doing that so I need to change perspective and understand this is working as it should.

Bingo.