Tales from the Wallet: When to Dip Into Your Emergency Fund

when to dip into your emergency fundWe’ve talked in the past about emergency funds — particularly where they fit in a money roadmap and where you should stash the cash you’re saving for an emergency fund — but here’s something we haven’t talked about: when is it ok to dip into your emergency fund? How big of a deal is it to you if you need to take some money from your emergency fund to cover a big shopping trip, a vacation, or more? Do you overfund your emergency fund (and keep more than 6-9 months living expenses) so you CAN dip into it if you need it — or do you have a “stop point” where anything above a certain amount of money goes into an investment account? (On the flip side, do you keep a “fun money” or “mad money” account just for these kinds of indulgences — and save money to be spent?)

Pictured at top: I’m not usually a beige wallet kind of person, but this highly rated “tan sparkle lizard” wallet might make me change my mind. It’s $89 at Nordstrom (six other colors, too) (affiliate link).

As we’ve discussed in the past, I’m a pretty aggressive saver who hates to keep money sitting in low-interest checking and saving accounts, so for the most part I clear out our checking account every month and move left over money to higher interest online savings accounts. In addition to retirement savings, I use automatic transfers to savings and automatic investing as often as I can, and I also try to amortize known big purchases (like term insurance and a vacation budget) so that the cost is spread out over the year instead of hitting in one particular month. In fact, I have about 10+ accounts open at Ally right now for various things personal and business, as well as one big account at Ally that we consider to be our “family emergency fund.” But of all my crazy accounts I don’t have a “fun money” account — and maybe I need one for those for times when our credit card bill is bigger than expected, or it’s been a birthday month (or, ahem, a Nordstrom sale month) and more.

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Cash Savings vs. Retirement Savings Accounts: Where to Stash Your Money When You’re Unsure What You’re Saving For

Cash Savings vs. Retirement Savings: Retirement Savings Accounts 101Everyone knows saving for retirement is a priority, because retirement is important and compound interest is powerful — but are the tax savings for retirement accounts so great that you should use them to save extra cash, too, such as for a hypothetical future home purchase? When I was in my late 20s — unmarried, not yet a homeowner, not sure how long I wanted to do the lawyer thing — this was my serious concern: cash savings vs. retirement savings. With my future so uncertain, and with so long to go before retirement, I wondered if I was losing more opportunities by saving money where I could get to it quickly, or by putting it away in retirement accounts… If I saved in cash, then my money was always available to me in case I wanted to buy an apartment, get married, or go back to school, but everyone told me to put it in retirement accounts instead to get the tax benefits (plus, retirement is important!).

In the early years, I was lucky because Schwab’s money market fund was paying ridiculous interest by today’s standards (5%!); I also finally did start maxing out my 401K in addition to saving money in cash when I was around 28. But when I finally got my bearings and started researching different retirement savings accounts, I was shocked to find that a lot of them would let me put the money (or some of it, at least) toward school, a first home, or more. A few years ago we did a post on tax-savvy investments that looked at these kinds of questions — but it’s been too long and we need an update. Thank you so much to editor Kate Antoniades for looking into the ultimate question: How do cash savings vs retirement savings stack up? If you’re already saving for retirement but have an extra $5,000 that you think you might need soon — but aren’t sure — should you leave it in a cash account earning very little interest, or put it in a retirement account to get tax benefits? – Kat

We haven’t gone into detail about tax-savvy investments like retirement savings accounts since 2012, so it’s definitely time for an update. What are the different retirement savings accounts available to most people? What are the tax benefits of them? Can you use the money for anything other than retirement, like grad school, a vacation or wedding, or a home purchase?  In the meantime, we’re shared posts on some pretty closely related topics such as setting financial goals for the year, making end-of-year money moves, choosing a financial planner, retirement savings in general, and paying down debt vs. saving. At election time last year, we talked about reacting to a stock market drop.

Before we get into the retirement savings vehicles — where, for the most part, you can’t touch your money until 59½ at the earliest — let’s discuss cash savings. (Oh, and a note on going back to school — if you’re 100% certain you’re going back to school, a 529 may be the way to go. Here’s a post from Fidelity that weighs the options.)

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How to Set Financial Goals for the Year

How to Set Financial Goals for the Year | CorporetteToday’s topic in Tales from the Wallet: do you set financial goals for the year? I started setting explicit financial goals when I left my cushy BigLaw job a few years ago — I had been so comfortable there that I could easily move every other paycheck to an interest-bearing money market fund, and then I took a job at a nonprofit, making about a third of my former salary. Suddenly faced with the prospect of austerity, I decided to set financial goals for the year.

Every year, I’ve kept my goals short, choosing just three or four, and I’ve gone back at the end of the year to see how I did. In 2010, my goals were to “1) bank all Corporette income, 2) renovate kitchen within budget, 3) max out 401Ks, and 4) pay down at least $10K of (my husband’s) student debt.” A few years later, when my first son J. came along, the goals were to “1) save 10% of our income, 2) max out J.’s 529 on top of our savings, and 3) assess all investments and figure out fees, performance, etc.” (That last one was a doozy and I wrote about it in our post on asset reallocation.)

(Pictured: Everyone says Comme des Garçons makes the best wallets — this gorgeous red continental wallet looks lovely.)

The “save X% of our income” goal is a mainstay on the goal list for me (sometimes 10, sometimes 15) and I’ve usually done a bit of planning to figure out how to get there. For example:

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Tales from the Wallet: How to React to a Stock Market Drop

How to React to a Stock Market DropDo you know what to do with your investments when the stock market takes a dive — how to react to a stock market drop? Were you worried about what would happen with the markets today? Late last night, as Donald Trump was getting close to winning the presidential election, the headlines began to announce dire predictions: “Trump’s win turns stock market into shock market,” from CBS News. “Be very scared for your 401(k) right now,” from Mother Jones. “Stock Futures Plunge as Donald Trump Posts Surprising Win,” from the Wall Street Journal.

Not everything about such a situation is bad, as Shannon McLay, founder and president of The Financial Gym, told us this morning before the markets opened:

I think that today will be a gift to investors as the stock market will likely drop on the uncertainty of a Trump presidency, but what that means for investors is that they have the opportunity to buy stocks, ETF’s, mutual funds, etc., on sale. Who doesn’t love a sale? If you have cash in your investment accounts, you should consider investing in the uncertainty, especially if you are investing for the long run.

Now that it’s late morning, we know that things aren’t as bad as expected. Under the headline, “Markets meltdown fails to materialise,” the BBC reported,”The S&P 500, Dow Jones, and Nasdaq stock indexes were little changed after the first hour of trading.” The Chicago Tribune reported that the “conciliatory comments” in Trump’s victory speech “helped global stock markets recover a large chunk of their earlier losses Wednesday.”

If there had been a big drop in the stock market, what would you have done? Do you know what the best things to do are? These are some of the experts’ tips:

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Tales from the Wallet: What to Do When You’re Facing “Frugal Fatigue”

frugal fatigueHow do you prevent “frugal fatigue,” also sometimes called “savings burnout”? It’s that feeling that you’ve been scrimping and saving and you have no money and the debts are still there and you’re not getting anywhere and dammit you just want to not think about it and buy what you want for a little while? I know readers have talked about this, and when I was writing the post about my budget spreadsheet, I realized that I have another spreadsheet I use also that, for me, prevents this kind of frugal fatigue: my “snapshot spreadsheet.”  This is how I personally prevent frugal fatigue, but I’m curious to hear from you guys — ladies, how do you prevent savings burnout? Do you rely on Mint or YNAB to give you an accurate picture of your net worth? How do you track net worth changes? Do you have similar ways of recognizing and patting yourself on the back for major monetary accomplishments, like debt payment or saving? (These particularly are helpful in guarding against savings burnout!) 

Pictured: Vera Bradley Georgia Wallet, $98 at Zappos in six colors. Love the fun inside lining! 

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Stressed About Filing Taxes?

Stressed About Filing Taxes? | CorporetteLadies, we have a bit more than a month before (dunh dunh dunh) Tax Day. Are you done with filing taxes? (And, who is doing them?) Are you stressed about them? Are you looking forward to a refund? Are you nervous about how much you’re going to have to pay?

For my $.02, I’m just starting to get stressed. I’ve used an accountant for as long as I can remember, but this is the first year I’m trying to use a bookkeeper as well. (I’ve never actually used TurboTax or similar software for filing taxes — my father may have used that when he “helped” / did my taxes for me my first year or two out of college.) But after law school, a friend recommended an accountant to me — this wonderful, older gentleman who I really liked. I had a simple tax situation at the time, and his services were, perhaps accordingly, pretty affordable. When we bought the apartment in 2009, though, he nearly missed a major tax credit; thankfully we caught the mistake before we signed our taxes. When we started looking for a new accountant, we knew income from Corporette was making our tax situation more complicated, so we were ok to sign on with a fancier accountant who cost 4-5 times what my former accountant charged. (Something else I learned when I switched accountants: estimated taxes aren’t optional for business owners, which was something I understood after talking with my first accountant. Fortunately it wasn’t a big problem since the extra income was so small back then, but it really drove home how much the first guy was hurting more than helping.)

Every year since signing on with my new accountant, he’s sent us a huge “Tax Planner” PDF as part of filing taxes. It’s about 50 pages long in tiny print and asks a zillion questions, and it’s always taken me hours and hours to complete. This is the first year I’m trying to outsource the tax planner to a bookkeeper; my hope is that my reviewing it will take a lot less time than my doing it. (Gotta delegate, right?)

In terms of actual taxes, April 15 is usually pretty rough as a self-employed business owner because my retirement savings are due, to be invested in one huge chunk, usually; final taxes for 2015 will be due, which may be higher than what I paid the previous year in estimated taxes; and the first chunk of estimated taxes for 2016 will be due, using new numbers based on my 2015 taxes. Those are three unknown numbers — and in the past we’ve had some nasty surprises where I needed a lot more in cash on April 15 than I had set aside. (Hooray for the emergency fund!) Now, after paying work-related bills, I earmark about 40¢ of every dollar I earn for month-to-month living expenses, and save the rest in Ally accounts that get 1% interest for taxes and retirement. I’ll breathe a happy sigh of relief should April 15 come and go without too many surprises.

Ladies, how about you — do you do your taxes by yourself? Do you consider them complicated or easy?  How did you find your accountant? 

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