From wsj.com
Here's how to squeeze the most out of your cash:
-Pay bills from a no-fee, low-minimum checking account.
-Keep extra savings in a high-yield online savings account.
-Pile expenses onto credit cards that give cash back or other rewards.
But it does require some efforts from you
-Move your cash among your accounts.
-Watch out the fees - such as overdraft fee, or late payment fee.
Showing posts with label Cash. Show all posts
Showing posts with label Cash. Show all posts
Thursday, October 11, 2007
Wednesday, September 26, 2007
Cash is king
JONATHAN CLEMENTS of GETTING GOING says
When recession rules, cash is king.
Worried about a recession? Here's what to do:
• Keep funding your 401(k) plan to get the full employer match.
Why? Not really help you in the recession.
• Stockpile cash in a money-market fund.
• Set up a home-equity line of credit.
• Pay off credit-card balances.
When recession rules, cash is king.
Worried about a recession? Here's what to do:
• Keep funding your 401(k) plan to get the full employer match.
Why? Not really help you in the recession.
• Stockpile cash in a money-market fund.
• Set up a home-equity line of credit.
• Pay off credit-card balances.
Sunday, August 12, 2007
Clements defenses his contrarian advice
Jonathan Clements (of wsj.com) argued that those people in their 20s should forget the emergency reserve and, instead, focus on things like putting enough in their 401(k) to get the full company match.
If they had a financial emergency, they could always borrow against their 401(k).
What if those twentysomethings borrow against their 401(k) and then get laid off?
The current law says that if you get laid off, these 401(k) loans have to be repaid immediately. If you can't come up with the cash, you would owe both income taxes and a 10% tax penalty on the money borrowed.
Clements suggests that after pay tax penalty, 401(k) loans still going to be ahead than the emergency fund which sits in say, a savings account or a money-market fund.
- 401(k) contribution will get company match.
- 401(k) contribution is tax-deferred and saving for emergency is not.
- 401(k) also gets tax-deferred investment growth and emergency fund gets short-term interest rate that probably exceed inflation rate by 1 or 2 points.
Clements assumes that there is no certainty we will have a financial emergency. Most of us don't regularly get laid off, wrap the car around a telephone pole, or need an emergency appendectomy. In fact, many of us will make it through our entire lives without a major financial crisis.
I disagree with Clements.
We will have financial crisis sooner or later. We will change jobs - planned or unplanned, We will have car accidents.
If you can't amassing an emergency reserve equal to six months of living expenses, save $1000 for for a beginner emergency fund instead.
Also, you're repay the 401(k) loan with after-tax dollars. So, let's say your monthly interest payment is $300 and you're in the 25% tax bracket. You'll have to make $375 to make the $300 payment. Then, when you retire and withdraw from 401(k), you pay taxes yet again.
If they had a financial emergency, they could always borrow against their 401(k).
What if those twentysomethings borrow against their 401(k) and then get laid off?
The current law says that if you get laid off, these 401(k) loans have to be repaid immediately. If you can't come up with the cash, you would owe both income taxes and a 10% tax penalty on the money borrowed.
Clements suggests that after pay tax penalty, 401(k) loans still going to be ahead than the emergency fund which sits in say, a savings account or a money-market fund.
- 401(k) contribution will get company match.
- 401(k) contribution is tax-deferred and saving for emergency is not.
- 401(k) also gets tax-deferred investment growth and emergency fund gets short-term interest rate that probably exceed inflation rate by 1 or 2 points.
Clements assumes that there is no certainty we will have a financial emergency. Most of us don't regularly get laid off, wrap the car around a telephone pole, or need an emergency appendectomy. In fact, many of us will make it through our entire lives without a major financial crisis.
I disagree with Clements.
We will have financial crisis sooner or later. We will change jobs - planned or unplanned, We will have car accidents.
If you can't amassing an emergency reserve equal to six months of living expenses, save $1000 for for a beginner emergency fund instead.
Also, you're repay the 401(k) loan with after-tax dollars. So, let's say your monthly interest payment is $300 and you're in the 25% tax bracket. You'll have to make $375 to make the $300 payment. Then, when you retire and withdraw from 401(k), you pay taxes yet again.
Thursday, July 12, 2007
Using Roths for emergencies
Source: Humberto Cruz, a columnist for Tribune Media Services July 8 2007
My comment:
Once you withdraw the money from your Roth IRA, you could not put the money back at later time.
This article argues that Roth IRAs could be counted as part of your emergency fund.
The Roth IRA is a type of individual retirement account that, unlike a traditional IRA, does not offer a tax deduction on contributions. But all withdrawals can be tax-free once you are 59 1/2 and have had a Roth IRA opened at least five years.
Another advantage is that, because you've already paid taxes on the money you contributed, you can always withdraw your contributions, at any time and for any reason, without taxes or penalties.
It is possible to use a Roth IRA as an emergency fund.
If you need the money, it is there for you. If you don't need it, you can leave it alone to grow tax-free for retirement.
However, Roth IRAs are ideal vehicles for long-term, growth-oriented investments such as stocks and stock mutual funds. Emergency funds are best kept in stable, short-term investments that can be converted to cash quickly without loss of principal.
Therefore, before using part of your Roth IRA as an emergency fund, you need to consider whether it fits within your overall asset allocation.
My comment:
Once you withdraw the money from your Roth IRA, you could not put the money back at later time.
This article argues that Roth IRAs could be counted as part of your emergency fund.
The Roth IRA is a type of individual retirement account that, unlike a traditional IRA, does not offer a tax deduction on contributions. But all withdrawals can be tax-free once you are 59 1/2 and have had a Roth IRA opened at least five years.
Another advantage is that, because you've already paid taxes on the money you contributed, you can always withdraw your contributions, at any time and for any reason, without taxes or penalties.
It is possible to use a Roth IRA as an emergency fund.
If you need the money, it is there for you. If you don't need it, you can leave it alone to grow tax-free for retirement.
However, Roth IRAs are ideal vehicles for long-term, growth-oriented investments such as stocks and stock mutual funds. Emergency funds are best kept in stable, short-term investments that can be converted to cash quickly without loss of principal.
Therefore, before using part of your Roth IRA as an emergency fund, you need to consider whether it fits within your overall asset allocation.
The priority of emergency savings
Source: FISCALLY FIT By TERRI CULLEN
When it rains (financially), it pours
July 12, 2007
Financial planners generally recommend 3 to 6 months of household income for emergency reserve.
Part of the reason planners push clients to have such a large stash of emergency cash is because most workers don't have enough disability insurance. Almost three in 10 of today's 20-year-olds will become disabled before age 67. But less than a third of workers at private companies have disability insurance. Workers whose companies do provide disability insurance, meanwhile, may not realize how much of their income wouldn't be replaced in the event of injury or illness.
It took the author about a decade to put together her rainy day fund. But is it reasonable to expect that everyone should have three months -- let alone six -- of income saved?
Of course not. Depending on where you are in life, other savings accounts (and debts) take priority. Younger workers often put off saving entirely because they're struggling with student-loan and credit-card debt, while older workers may have college bills and retirement accounts at the top of their saving-priority list.
That said, having little or no emergency savings is a recipe for disaster.
Relying solely on home-equity loans or lines of credit - or worse, credit cards - to pull yourself out of a serious financial jam can devastate your finances for years to come, particularly at times when interest rates are heading higher.
So instead of focusing on the seemingly insurmountable goal of amassing three months' salary, take baby steps toward improving your financial-security net.
Open a high-yielding savings account and have a portion of your paycheck (say, $100) automatically deposited into your account. If money's really tight, start smaller. Once your savings is large enough to invest, open a Roth IRA and have your automatic deposits moved there. Just be sure your deposits remain within the contribution limits -- the limit for 2007 is $4,000 (or $5,000 for those age 50 and older).
When it rains (financially), it pours
July 12, 2007
Financial planners generally recommend 3 to 6 months of household income for emergency reserve.
Part of the reason planners push clients to have such a large stash of emergency cash is because most workers don't have enough disability insurance. Almost three in 10 of today's 20-year-olds will become disabled before age 67. But less than a third of workers at private companies have disability insurance. Workers whose companies do provide disability insurance, meanwhile, may not realize how much of their income wouldn't be replaced in the event of injury or illness.
It took the author about a decade to put together her rainy day fund. But is it reasonable to expect that everyone should have three months -- let alone six -- of income saved?
Of course not. Depending on where you are in life, other savings accounts (and debts) take priority. Younger workers often put off saving entirely because they're struggling with student-loan and credit-card debt, while older workers may have college bills and retirement accounts at the top of their saving-priority list.
That said, having little or no emergency savings is a recipe for disaster.
Relying solely on home-equity loans or lines of credit - or worse, credit cards - to pull yourself out of a serious financial jam can devastate your finances for years to come, particularly at times when interest rates are heading higher.
So instead of focusing on the seemingly insurmountable goal of amassing three months' salary, take baby steps toward improving your financial-security net.
Open a high-yielding savings account and have a portion of your paycheck (say, $100) automatically deposited into your account. If money's really tight, start smaller. Once your savings is large enough to invest, open a Roth IRA and have your automatic deposits moved there. Just be sure your deposits remain within the contribution limits -- the limit for 2007 is $4,000 (or $5,000 for those age 50 and older).
Monday, July 2, 2007
How to fund the emergency reserve
Source: GETTING GOING By JONATHAN CLEMENTS - Six Months of Emergency Cash? Get Real - November 13, 2005
My comments:
In this article, Jonathan Clements is advising us to keep the emergency funds in stocks or stock funds in order to bolster the overall performance of our savings.
His advice is too sophisticated for me. Still, this article is worthwhile to read.
Conflicting financial goals
In case you get hit with a financial emergency, you should keep six months of living expenses in conservative investments (i.e. cash or money market funds) held in your taxable account.
However, having $30,000 sitting in your bank account earning 1% or 2% for many years is absurd, particularly if you're struggling to save for retirement.
Maybe it's time to ditch the advice of a separate emergency fund.
Instead, start with these four steps.
First, think of your emergency money and retirement nest egg as one big pot of money.
Second, build up the savings in your taxable account, using this money to buy tax-efficient stock funds.
Third, allocate at least part of your 401(k) plan or individual retirement account to bonds.
Fourth, set up a home-equity line of credit.
Example
Suppose you suddenly need $15,000 to pay a hefty hospital bill. If stocks are flying high, that's no problem. You can sell part of your taxable account's stock-fund holdings and pay the hospital that way.
What if we were in the middle of a brutal bear market? You would still sell $15,000 of your taxable account's stock-fund shares. But this, of course, seems foolish. After all, selling shares at fire-sale prices isn't exactly smart investing.
With that in mind, you would immediately want to repurchase the stocks in your retirement account, by shifting $15,000 from bonds to stocks. Result: You have maintained your stock exposure, you have lightened up on bonds and you have the $15,000 to cover the hospital bill.
Meanwhile, view your home-equity line of credit as an additional source of emergency cash.
The above strategy should bolster your portfolio's overall performance, because you no longer have a huge wad of money languishing in low-returning investments.
As an added bonus, you will also enjoy a fistful of tax advantages.
For instance, the tax-efficient stock funds in your taxable account shouldn't kick off large taxable distributions and those distributions you do receive will probably get nicked at the long-term capital gains or dividend-tax rate.
These days, that means paying a maximum of just 15% on tax. You will likely also pay that rate if you have an emergency and have to liquidate part of your taxable account's stock-fund holdings.
By contrast, you wouldn't want to pay for a financial emergency by dipping into your retirement accounts. That would be likely to trigger both income taxes and tax penalties, which together might snag 40% of any withdrawal.
That said, retirement accounts can be a great investment vehicle, in part because they offer tax-deferred growth. Thanks to that tax deferral, these accounts are the best place to hold your bonds, including the bonds needed for your emergency-money strategy.
As you probably know, the interest from taxable bonds gets taxed at ordinary-income-tax rates. However, if you stash your bonds in a retirement account, you should amass greater wealth. The reason: You get to defer the tax bill and you can use the money earmarked for taxes to earn additional investment gains.
Even the home-equity line of credit has tax advantages. If you tap the credit line, you should be able to deduct the mortgage interest on your tax return.
My comments:
In this article, Jonathan Clements is advising us to keep the emergency funds in stocks or stock funds in order to bolster the overall performance of our savings.
His advice is too sophisticated for me. Still, this article is worthwhile to read.
Conflicting financial goals
In case you get hit with a financial emergency, you should keep six months of living expenses in conservative investments (i.e. cash or money market funds) held in your taxable account.
However, having $30,000 sitting in your bank account earning 1% or 2% for many years is absurd, particularly if you're struggling to save for retirement.
Maybe it's time to ditch the advice of a separate emergency fund.
Instead, start with these four steps.
First, think of your emergency money and retirement nest egg as one big pot of money.
Second, build up the savings in your taxable account, using this money to buy tax-efficient stock funds.
Third, allocate at least part of your 401(k) plan or individual retirement account to bonds.
Fourth, set up a home-equity line of credit.
Example
Suppose you suddenly need $15,000 to pay a hefty hospital bill. If stocks are flying high, that's no problem. You can sell part of your taxable account's stock-fund holdings and pay the hospital that way.
What if we were in the middle of a brutal bear market? You would still sell $15,000 of your taxable account's stock-fund shares. But this, of course, seems foolish. After all, selling shares at fire-sale prices isn't exactly smart investing.
With that in mind, you would immediately want to repurchase the stocks in your retirement account, by shifting $15,000 from bonds to stocks. Result: You have maintained your stock exposure, you have lightened up on bonds and you have the $15,000 to cover the hospital bill.
Meanwhile, view your home-equity line of credit as an additional source of emergency cash.
The above strategy should bolster your portfolio's overall performance, because you no longer have a huge wad of money languishing in low-returning investments.
As an added bonus, you will also enjoy a fistful of tax advantages.
For instance, the tax-efficient stock funds in your taxable account shouldn't kick off large taxable distributions and those distributions you do receive will probably get nicked at the long-term capital gains or dividend-tax rate.
These days, that means paying a maximum of just 15% on tax. You will likely also pay that rate if you have an emergency and have to liquidate part of your taxable account's stock-fund holdings.
By contrast, you wouldn't want to pay for a financial emergency by dipping into your retirement accounts. That would be likely to trigger both income taxes and tax penalties, which together might snag 40% of any withdrawal.
That said, retirement accounts can be a great investment vehicle, in part because they offer tax-deferred growth. Thanks to that tax deferral, these accounts are the best place to hold your bonds, including the bonds needed for your emergency-money strategy.
As you probably know, the interest from taxable bonds gets taxed at ordinary-income-tax rates. However, if you stash your bonds in a retirement account, you should amass greater wealth. The reason: You get to defer the tax bill and you can use the money earmarked for taxes to earn additional investment gains.
Even the home-equity line of credit has tax advantages. If you tap the credit line, you should be able to deduct the mortgage interest on your tax return.
Wednesday, January 10, 2007
Where I keep my emergency fund?
Where I keep my emergency reserve of 6-months living expenses?
1-month of living expenses at the checking accounts at the banks of brick and mortar
2-months at the virtual banks to earn some interest
Examples
ING DIRECT
- High interest savings accounts - 4.50% APY
- Certificates of deposit - 5.25% for 9 months
- Paperless checking - 4% APY
SCHWAB BANK
- Investor checking - 4.25% APY
3-months at TREASURY DIRECT & FIDELITY where I purchase treasury bills
TREASURY DIRECT
- Treasury bills (savings bonds are for long-term savings)
- Interest rates are slightly higher and free from state and local income taxes
- Easy process to repurchase the bills automatically.
- Paperless
The money at the brokerage accounts at Fidelity (& Charles Schwab too) could be invested in Treasury bills without any fees.
I have all these accounts linked to my checking accounts at the local banks; so that most money can be available in 1 -2 business days.
1-month of living expenses at the checking accounts at the banks of brick and mortar
2-months at the virtual banks to earn some interest
Examples
ING DIRECT
- High interest savings accounts - 4.50% APY
- Certificates of deposit - 5.25% for 9 months
- Paperless checking - 4% APY
SCHWAB BANK
- Investor checking - 4.25% APY
3-months at TREASURY DIRECT & FIDELITY where I purchase treasury bills
TREASURY DIRECT
- Treasury bills (savings bonds are for long-term savings)
- Interest rates are slightly higher and free from state and local income taxes
- Easy process to repurchase the bills automatically.
- Paperless
The money at the brokerage accounts at Fidelity (& Charles Schwab too) could be invested in Treasury bills without any fees.
I have all these accounts linked to my checking accounts at the local banks; so that most money can be available in 1 -2 business days.
Subscribe to:
Posts (Atom)