If you have more than $10,000 in the bank, I think you’re silly.

After a few years of living well below our means, Girl Ninja and I have managed to save up about $80,000. On average, we spend about $3,500/month. According to my calculator watch, this means we could survive for about two years – at current spending rates – on just our savings. If we cut back on spending just a tad, which we would in the event we both lost our jobs, we could stretch this out to over 2.5 years of expenses. Talk about financial security!

But then there is this pesky thing called a down payment that one must consider when looking to buy a home (don’t worry this isn’t another post about homeownership). For the houses we are looking at, this likely means a down payment of around $70,000. This leaves us with just $10,000 in the bank after we buy a house (note: I’m assuming the seller will pay most, if not all, of our closing costs as part of the purchase agreement).

In the event we both lost our jobs, $10,000 would only sustain us for about three months. That’s a heck of a lot less cushion than the 18+ months we’ve gotten use to having. So what are we gonna do about it?

Absolutely nothing!

First, let’s not forget the $80,000 we have banked is not really our emergency fund. Some of it is, but most of it has always been earmarked as a “future house fund”.

While you might say “Ninja three months of expenses is not enough for an e-fund”, I would say back “You sir are a cotton headed ninny muggins.” $10,000 is plenty for the Ninja household. Here’s why…

The odds of us losing our jobs at the exact same time are quite small. She’s a teacher and hasn’t had an issue substituting or getting a contract position since she graduated college. Even when the San Diego School District was slashing positions left and right, Girl Ninja got a full-time contracted teaching position. Heck, she secured a teaching contract in Washington state three months before she even moved here. Needless to say, the girl is good at what she does.

While it’s possible the federal government workforce could be reduced here in the coming months/years, my position isn’t going anywhere. This isn’t an arrogant statement, it’s just reality. You remember when there were murmurs of a government shutdown a year ago? I got an email from my agency specifically saying our position is considered “mission critical” and I would have to continue working, shutdown or otherwise. What’s more, my performance reviews have always been favorable and I am no longer the youngest agent on the team (well I am the youngest by age, but not by years worked). Government positions are infamous for being pretty darn stable. If we worked in less secure fields we’d definitely consider bumping up our E-fund.

Maybe $10,000 isn’t enough, but I just can’t think of a plausible situation in which we would need access to all of that money in one swoop. Both of our vehicles are fully insured (comprehensive and collision) so they could be stolen, or totaled by an uninsured motorist, and we’re protected. We have renters insurance so if someone breaks in to our house and steals all our stuff, we’re covered. We have awesome healthcare benefits through our employers (Girl Ninja is actually double-covered) and our max out-of-pocket is well below this $10,000 threshold. Life and disability insurance are benefits my work provides. Short of someone kidnapping Mom Ninja and demanding $50,000 ransom, our $10,000 emergency fund should cover all major hiccups (especially if one, or both, of us are still working and brining in money).

Let’s not forget, savings accounts are terrible places to let money sit. They don’t keep up with the rate of inflation, which means you actually LOSE money each year. Why put more in a crappy savings vehicle than necessary? Remember money in a Roth IRA, and/or a taxable investment account, can be accessed in the event of an emergency without penalty.

Heck, if Girl Ninja and I decided tomorrow that we never wanted to buy a home, we would immediately invest the $70,000 we would have put down on a house. WE WOULD NOT KEEP IT IN OUR SAVINGS ACCOUNT ANY LONGER. We only have $80,000 in the bank because we plan on writing a fat check in the next few months.

Stocks and bonds help grow wealth. Savings accounts can’t even maintain wealth 🙁

Sometimes, I think people who have a 12 month emergency fund are silly, but I guess that’s the beautiful thing about personal finance. You do you, and I’ll do me. Chances are we’ll both end up just fine… although my money will at least be keeping up with inflation 😉

Low blow?

How much do you have in an emergency fund right now (dollars and/or months of expenses covered)? What’s your ultimate E-fund goal? What made you decide that amount (why not more than that)? Has anyone with a 12 month e-fund actually used ALL of that money for an emergency?

p.s. I am not advocating people should keep three months of expenses in the bank and blow the rest, but merely they should consider keeping three months in cash, and investing the rest.

Help me convince Girl Ninja she’s crazy.


I was asking Girl Ninja
what I should blog about tonight (she is often the source of inspiration of my posts) and we began talking about dedicated savings account. We ended the conversation agreeing to disagree. She likes the idea of multiple dedicated savings accounts and I hate it. We debated for about 2 minutes about this before she began beating me profusely and yelling “Girl Ninja owns you!!!!”

….Yeah, that’s exactly what happened 🙂

Here’s my opinion:

Multiple savings accounts, while probably a good idea for most, seem totally inefficient to me. I love keeping all our money in one main account and watching that sucker grow as much as possible each month. It promotes intense focus and allows us the ability to achieve our BIG goals faster. As you know, we are working towards a $100,000 savings fund. By putting all of our discretionary savings in to one account, we will be able to reach that down payment goal pretty quick. If we were splitting our savings amongst a dedicated house fund, vacation fund, new car fund, furniture fund, etc, I would feel like we were barely making progress. Essentially I like to check one goal of the list before moving on to the next one.

Girl Ninja’s opinion:

My hotty with a naughty body, however, thinks dedicated savings account are pretty darn terrific. For her, it supports guilt free spending. If the travel fund has $2,000 in it, and an opportunity to go to on a sweet vacation cones our way, we book the trip no questions asked. Instead of picking one thing and focusing on it, she’d rather make a list of all our goals and work towards accomplishing all of them at the same time.

Since this is MY blog, and not hers, I declare myself the winner of this argument!

Booya for winning. Haha, kidding. I imagine most of you probably set savings goals for a whole bunch of things, but hopefully there are at least a few of you that side with me. Anyone, anyone? Bueller…Bueller?

How many separate DEDICATED savings account do you have and what are they for?

If you only have one primary savings account, do you ever feel guilty taking from it to do other things like go on vacation, etc?

If you have multiple savings accounts, do you ever get frustrated that you aren’t able to check goals of the list as quickly?

WHO DO YOU SIDE WITH!?

YODO

So I was reading – yes contrary to popular belief I know how to read – my good friend J. Money’s blog the other day and came across a guest post on there from another friend, Paula Pant. The article was titled “Saving 50% of our income“. If you couldn’t guess by the title, Paula and her Boyfriend have committed to saving 50% of their pay in 2012.

This wasn’t the first time I’ve read about people who set a goal to save an “above average” amount each month. Heck, Jacob at Early Retirement Extreme challenges people to save/invest 75% of their take home pay and retire way younger than they ever thought possible. Pretty neat-o if you ask me.

I’ll be the first to admit, I love me some savings, but dang Gina…. 75%, or even 50% seems a little intense. My savings strategy differs from most bloggers. Instead of putting aside a set amount each month, I just sporadically throw money in to our savings account whenever our checking account gets too stacked. That’s right, I break one of the cardinal rules of personal finance:

I pay myself last. Not first like everyone else suggests.

Fortunately, we aren’t reckless spenders and we typically are able to throw a healthy portion of our discretionary income in to our savings account. But Paula inspired me, so I thought I’d take a minute to calculate just how much Girl Ninja and I are saving each month. Let me check Mint now and see what I find….

….Apparently we’ve added $20,200 to our savings account and brought home about $40,600 this year. This works out to an overall savings rate of 49.75%. Are you freaking kidding me?! Literally 0.25% away from getting to say I can join the company of Paula Pant and bank half of my take home pay. Lame-freakin-sauce.

Perhaps all is not lost, however? If I get to factor 401K contributions in to this equation then we are stocking away upwards of 58%. Do I get to join the club, Paula???

It’s kind of weird to be honest. I’ve always thought people who save 50% of their income are crazy-intense PF nerds, but as it turns out a few good habits can go a long way.

It’s probably also important to note that, although we are currently able to bank about 50% of our take home pay, I know this will not always be my reality. GN and I are in a financially awesome stage of life known as DINKhood. Once Girl Ninja becomes a stay-at-home mom, we lose her income, our expenses will increase, and the days of 50% savings will be long gone. YODO….You Only Dink Once.

So reader, do you have it in you? Wanna calculate how much $$$ you’ve thrown in to savings this year and divide it by the amount of $$$$ you’ve taken home (remember to do net pay, not gross)? What’s your percentage?

p.s. this isn’t a contest as I imagine some of you can save nothing (college students, single parents, etc) while others can save 80% of their income without batting an eye (40-somethings that still live with their parents, people with high paying jobs, trust-fund babies). I just like hearing about where y’all are at, and judging by the 87 comments on my Credit Card debt post, you guys don’t mind sharing 🙂

Are you a rate chaser?

I have a very big announcement to make on Wednesday, so big in fact, it’s taking up almost all of my free time and I literally can’t even sit down to write a blog post for you today. NO SOUP FOR YOU (always wanted to say that). Every now and again I get emailed guest posts from different companies and freelancers wanting to put stuff on my blog. Ninety-nine percent of the time I tell them no, but every now and again some useful information actually hits my inbox. Today’s guest submission is worth sharing. Enjoy 🙂

Rate Chasing – Is it worth it?

Due to the current economic climate, many people feel like they have to make their cash work harder for them in order to reap the rewards. It can be tempting to switch your credit card to a new card with a better rate of interest and in some cases it can be very beneficial to do so. However, if you compare credit cards and switch your cash from card to card, or if you compare savings accounts and switch from account to account, it does have its drawbacks that you should be aware of.

Do you know what rate chasing is?

Rate chasing is when you move your money from account to account or from card to card while you chase a better interest rate. Rate chasers are always chasing the best interest rates and promotional offers, and even if they’ve just moved account and a better account surfaces they will look to move again.

How much cash are you rate chasing with?

Rate chasing generally benefits those that have a lot of spare cash in their accounts. If you have $1000 worth of savings then moving savings account to one that offers you an extra 1% won’t really be that beneficial to you and it might not be worth your time. However if you have $100,000 in savings then 1% can make quite a big difference to your balance.

The potential worries of rate chasing

  • Risk Vs Reward – The main risk of rate chasing can be when a new product enters the market that offers a great interest rate, but it’s a product from a provider that isn’t very well known in the financial world.Do you risk transferring your funds to this new account even though you have worries about the provider? I have heard about times when people have moved to a new savings account in this scenario, some have really benefited by the improved interest rates, where others have been extremely disappointed due to the level of customer service that they received from the new provider. Ask yourself, is it really worth it?
  • The time and effort – Many people spend hours of their time checking for the latest high yield savings accounts interest rates, and whilst doing so they work out how much they could potentially save if they move their funds again. Doing this does take a lot of time and effort and for the majority of us who don’t have $100,000+ worth of savings it simply won’t be worth our time to move accounts.
  • The accounts terms and conditions – Some of the best high yield savings accounts have quite clear terms and conditions that don’t allow you to withdraw any money without incurring a penalty. Bearing this in mind, if you notice a savings account promotional offer that is better than your own, you need to take all your terms and conditions in to account before you decide to move or you could end up actually losing money.
  • Loses due to the transfer – It’s important to remember that if you decide to move account you won’t be accruing any interest whilst your cash is being moved, and also your funds will be unattainable at this time. So if your main reason for your savings account is to have an emergency fund, it’s definitely worth thinking about before you switch as it might take a while for your money to be available in the new account.

Rate chasing is really a question of risk Vs reward and you have to decide for yourself if you think it’s worth it. Have you ever rate chased? Does your current accounts offer any perks? Is it worth the hassle?

p.s. I hope to have a post up tomorrow, but I’m seriously staying so busy with this side project that it might not happen. Wednesday though, I’ll be spilling all the details and filling you guys in on what’s going on in my life. Are you excited, cause I sure as heck am 🙂

The one way savings account

On November 30th, 2010 Girl Ninja and I had exactly $2,824.65 in our savings account (this does not include our Emergency Fund). Between November 2010 and September 2011, this account became very hungry and ate just about every dollar of discretionary income we had. By Sept. 2011, only ten months later, our savings had increased from less than $3,000 to an astonishing $45,017.92.

Our savings account was, and for the most part still is, a one way account. Money goes in, but it doesn’t go out. This is both good and bad. Good because we’ve been able to stock pile a lot of cash over the last twelve months. Bad because cash in and of itself is worthless, its value is only realized when utilized to purchase a good or service.

I leave this Friday for a six-week work trip to Korea. Whenever I go abroad for work, I have the potential to make some serious extra money. This trip should net me about $4,000 in addition to my standard base salary.

Every other time I have traveled (this is my third international trip), I’ve thrown the extra cash I’ve made in to our savings account and called it a day. Doesn’t that just scream….

This time, things are different. I know myself too well. If Girl Ninja let me put that $4,000 in to our “extra” savings fund, I wouldn’t want to ever take it out. I’m obsessed with watching the value of that savings account rise, and I seriously might suffer a mild heart attack (or have at least have really bad gas) if I saw the balance decrease.

So how do we reconcile this silly predicament?

It’s quite easy actually. I’ve created a new savings account with ING and labeled it the “New To Us Car Fund”. As you know, the wife and I plan to sell one of our two vehicles on Craigslist in the coming months (or years) and use the cash from the sale to purchase a gently used SUV from a private party. Since neither of our vehicles will fully cover the cost of a decent SUV, we will have to front the cash to cover the difference. Car loans are definitely not sexy.

If I put the $4,000 I make in to our extra savings fund, there is no way I’d be willing to pull the money out for an SUV. It would be too emotionally difficult for me. I’d feel like we were taking a step backward. The New Car Fund, however, is not a savings account. Instead it’s a spending account that I know we will tap in the near future.

I feel like a crazy person for even blogging about this. I don’t know why I can’t just suck it up and throw the $4K in our normal savings account, leaving a mental note that at some point down the road we will pull that same $4K out. My brain just doesn’t work that way I guess.

Maybe one day I’ll be financially mature enough to keep all of our savings in one main account, but today is definitely not that day.

Do you have a hard time spending money that’s in your savings account? Do you keep separate savings accounts (like I do) so that you don’t feel guilty about tapping your funds?

A $14,000 raise.

As you are already aware, Girl Ninja and I made the move to Seattle this last summer (We miss all you beautiful peeps in San Diego). We found a great little mother-in-law apartment above a beautiful home in a suburb north of Seattle. It’s the perfect place for us right now; clean, cute, and cheap.

A few months ago, I got a phone call from my aunt who recently bought an incredible four bedroom house. only fifteen minutes away from where Girl Ninja and I currently live.

Here are a few pictures of her new place (click any one to make larger)…

As you can see the house is freakin’ sick and has insane views of the Puget Sound.

Now here comes the interesting part…

My aunt lives in Southern California and bought this house for when she retires…in a few years. Since the 2,600 sqft abode will be pretty much vacant until that time, she proposed an incredibly generous offer to us. She said Girl Ninja and I could move in to her house and live there for free (of course we’d pay utilities).

Our current rent runs $1,1175/month, or for the math-nerds $14,100 a year. Wow never really thought about my rent as an annual expense. It’s kinda depressing. If we moved in to my aunt’s place we’d essentially be saving most, if not all, of that $14,000. We’d be stupid to not accept such an amazing gift right?

Well, Girl Ninja and I apparently hate saving money because we did just that. Yup, we turned down the beautiful waterfront home and decided to stay in our small little apartment.

Why you ask? Well, hopefully my “pros and cons” list will help make that clear…

Pros of Aunts Place: 

Almost 2,000 square feet bigger than our current place.

We’d have a garage for our cars, and plenty of room for storage.

Three extra bedrooms.

Super sick panoramic water views.

We’d be living in a house and, for the first time in our marriage, wouldn’t have any shared walls with neighbors

It’s an 80,000sqft lot.

We save almost $14,000 each year we live there.

We get a good idea of the maintenance and upkeep of a house before we actually buy one.

Did you see those views from the Master bedroom?!

Cons of Aunt’s Place:

Although it’s LITERALLY only four miles away from our current place, it can take two hours (or longer) to get there.

Bet ya didn’t see that one coming, did ya? My aunt’s new house is located on one of the many islands in the Puget Sound. The only way to get from our place to hers is by taking a short 15 minute ferry ride (you can walk or drive on). No big deal right? Hop on the ferry, and fifteen minutes later you are on the mainland. Not so fast.

If it were really that simple, we’d be fools not to accept my aunt’s offer. In reality, we would both have to commute via the ferry to get to and from work each day and, although the ferry rides last no longer than 15 minutes, it is not uncommon to have to wait one or two hours to actually get on the ferry. The backups are insane during normal commuting hours and are impossible on holiday weekends. I would never accept a job that’s two hours away from where I currently live, and living on the island could be asking me to do just that.

Lastly, ferry rides aren’t necessarily cheap ($7/vehicle plus $4.50/passenger). We knew this would severely limit the number of visits we got from friends. We didn’t really like the idea of asking our friends to fork out $15 each time they wanted to come visit us. We just couldn’t get over the idea of isolating ourselves on the island (no malls, friends, family, large grocery stores, etc over there).

You know me. I LOVE SAVING MONEY. It was really generous of my aunt to offer up her place, and it absolutely kills me to turn it down. I’d love living rent free, but at the end of the day, an easy/predictable commute and proximity to friends, family, and entertainment is more important to us than an extra $14,000 in our bank account.

AHHHH, grown up decisions suck!

Are you banking on Social Security?

Are you setting yourself up for self-sufficiency? Who do you rely on for survival? Do you know what you need to do today, to have ‘enough’ 20, 30, or 40 years from now?

If you’re planning on social security providing for you, like a mother’s milk provides for her baby, it’s time to start “feeding” yourself. Here’s the steps we have already taken, are currently taking, and will take, to ensure we aren’t dependent on the government to pay our bills…

No stupid debt:

I’m not as intense as Dave Ramsey. If you want to take out a 0% car loan, fine by me. But if you are up to your eyes in credit card (or other high interest debt), then you need to get your crap together and start working your way out. The path to financial success starts with paying yourself (not Sallie Mae) first.

A reasonable mortgage:

Do you know how long a 30 year mortgage takes to pay off? THIRTY FREAKIN’ YEARS! That’s insane. I’m not even 30 years old! I couldn’t imagine making a payment for three full decades. Girl Ninja and I have no clue what the terms of our mortgage will be, but I can promise you this, we aren’t going to buy more house than we can afford. Home ownership is still a year or more away, but our goal would be to keep our mortgage payment under 30ish% of our net income. I like the flexibility of a 30yr mortgage, especially since you can pay it down in 20, 15, or 5 years if you want.

Investing/Saving:

This is where true government independence comes in. If you want to retire (aka not work anymore) you better start doing something about it. The Roth IRA and 401K are my investment vehicles of choice. By putting a few bucks away today, I plan to have a couple million waiting for me during my golden years. I don’t care how old you are, the time to start investing was yesterday. Get to it!

There are a few other things that consist of our financial commandments like living within our means or shopping around before we make a purchase, but I figured it’s best to bore you any longer. Moral of the story is this: If you are 50+, you will probably receive at least some social security benefits. If you are 50 (or younger) you may still receive some benefits, but it’s time to wean off the government teet and start feeding your bank accounts.

To those of you that are 50+, did you plan some of your retirement income around social security when you were younger?

To those that are 50 or under, are you banking on the fed financing your years in adult diapers?

Do you think there will be any social security programs when us 20-somethings retire?

What do you think the social security age will be 40 years from now?

p.s. I wrote this article one year ago and moved it to the front of the blog for relevant discussion today.