Wednesday, December 6, 2006

Where I keep my money

I have received some interest in blogging about my own personal finances and I am happy to oblige.

Background on my situation

First of all, I'm married, so everything is mine and my wife's and that has led to some duplicate accounts. I am basically in charge of where we put it, because I have so much fun doing it!

We are currently renters, but we hope to buy a house sometime in the next few years. We are not rushing into anything, and are doing our best to save money for a down payment. Unfortunately, house prices in the NYC area are RIDICULOUSLY expensive, especially for a young couple just starting out. I can't underscore that enough. In fact, the small house we currently live in (we rent the 1BR apartment on the 2nd floor), an hour commute from Manhattan, would go for approximately $750,000 based on comparables in the area.

We are debating if we want to stay in NYC for the long term. My wife is from a small town in PA, and we are considering relocating there, but for now both of our jobs are here in NYC and we like where we're at. I might do another blog post on our moving considerations if there is enough interest.

The reason I give you all this back story is it explains where we currently have our money. What we do with our income right now is we spend about 40% of it each month and save the rest in relatively liquid, but high-yielding short term assets. When I look at my net worth, I divide it into four general categories:

1) Retirement accounts - all mutual fund 401k investments
2) Money available for down payment - high yield savings, CDs, T-Bills
3) Emergency fund - 3 months living expenses that we do not touch
4) Illiquid assets - we have 2 cars so I list the resale value of one of these here, as well as some other small assets we have that can't be easily turned into cash

Where We Keep Our Money

ING Direct. We currently have about 25% of our assets in an ING Direct savings account, and 25% in ING CDs laddered out about a year and a half.

My current employer's 401k. I divide this money amongst an Index fund (50%), a growth stock fund (20%), an international fund (10%), a smallcap fund (10%), a value stock fund (9%) and a fixed income fund (1%).

My former employer's 401k. This is a chunk of money I socked away from my first job in a Fidelity 401k plan. This money is about half of what's in my current employer's plan, and I have it allocated in the same way.

Her current employer's 401k. Similar allocations to mine.

Her pre-marriage bank account. A regional bank in PA. We leave it in there so she still has an account in her name, so she can get money out of the ATM when we visit her parents etc... There is not much in there.

US Treasury Bills. This is something new I have been experimenting with. With the Fed raising interest rates lately, yields on T-Bills have been rising (in fact we're currently sitting at a strange period in our financial history when shorter term bills are yielding more than longer term bills, which is known as an inverted yield curve.) The reason I started putting some money into T-Bills is something I noticed as I was filing my State and Local tax return last year. Interest on government issued securities is tax free at the state and local level. With NYC's high taxes, I think this makes t-bills just as attractive, if not more attractive, than my ING Direct account. I have this linked to my ING direct account so I can buy the bills with ING money, and when the bills mature, they go right back into the ING account.

Chase checking and savings accounts. Her entire check is direct deposited into this account every two weeks, and we live off of just that. We use their online billpay to take care of our bills, and we try to keep as little as possible in the low-interest savings account attached to the checking account. Fortunately, I am able to transfer some money out of this account every few months into our longer term savings account at ING.

TD Ameritrade Brokerage Account. This is a liquid account since I can sell the stocks if I want to buy a house or something, but it is not money I need. I would never invest money I might need within the next 5 years in stocks, especially individual stocks. I own two stocks in this account, and I trade pretty infrequently, but I am a big investing buff, so this provides me with an outlet to hopefully make some money off of my stock picks.

Final Thoughts

I guess there are a few key themes I'd like to highlight from this overview:

1) We live off of one paycheck. My wife's paycheck is actually a little more than we need to pay our usual bills every month and my paychecks all go into the ING account and from there they occasionally take a detour into a treasury bill.

2) We are putting our down payment fund in very safe, liquid investments. Hammer this into your brain: money you will need within 5 years does not belong in stocks. While they offer above average returns over the long run, they could get killed in the short term, putting you at the mercy of the market.

3) We are maxing out our 401K contributions and putting them all into stocks. Hammer this into your brain: if you have more than 30 years until retirement, put a large portion of your retirement savings into stocks. This is not to say that there is no debate on this point. In fact, noted financial guru Robert Kiyosaki recommends against putting so much of your net worth into your 401k plan, but that is a discussion for another post.

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