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Too much in cash

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  • Avatar Tuxedo 
    Participant
    Status: Physician
    Posts: 38
    Joined: 02/20/2017

    I need some help.  We are keeping too much $ in cash.  Between a combination of building up an emergency fund and various sinking funds we have 25% of our money “invested” in savings accounts and CDs.  The is in addition to the 25% of our income we are saving in tax-advantaged and a taxable brokerage account.

     

    Each month I’m very good at rationalizing why we need to add more to various sinking funds (a car that will need to be replaced 1 year to 5 years from now, a move across the country this summer).

     

    How can I balance the perceived need for various sinking funds with the inescapable math that our cash accounts are losing ground to inflation?

     

    Looking over past 4 years I see our cash position has grown and grown.  I realize this is not ideal.  I’d like to be throwing more in our taxable brokerage account but our current system makes it very clear what is “retirement money” vs. other extra money.   What should I do?

    #213222 Reply
    Avatar jz 
    Participant
    Status: Physician
    Posts: 669
    Joined: 01/09/2016

    define, “sinking fund”  ??

    #213223 Reply
    Liked by G
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1654
    Joined: 02/11/2019

    If you have use for this money in the next few years it is best kept in cash.  But do you need to keep the full amount for a future car purchase around in cash for 1-5 years?  How much extra cash flow do you have?

    Example. you are saving 30K for a car and investing 10K a month.  It would be better in my opinion to dump that 30K into the market now and when the time comes for a car cut back on your investments for a few months to get the cash you need.

    Keep an emergency fund in case your car explodes and you need something quick and for some reason cannot finance.

    But your emergency fund can cover multiple emergencies.  It can get you a new roof if that starts leaking,  it can get you a car,  pay medical bills,  cover for loss of employment, etc.   Hopefully all these things do not happen at once.

    “Never let your sense of morals prevent you from doing what is right.”

    #213225 Reply
    Avatar Tuxedo 
    Participant
    Status: Physician
    Posts: 38
    Joined: 02/20/2017

    Smaller amounts set aside each month for a future anticipated large expense.

    2k/mo for the tail for an impending job change.

    1k/mo for the car next car we’ll buy so we can pay in cash.

    2k/mo to finish paying the student loans off when we change jobs.

    etc, etc.

    That is part of the problem.  I can rationalize endless possible or definite future expenses and am saving for them now in safe low interest rate vehicles.

    #213226 Reply
    Avatar Tuxedo 
    Participant
    Status: Physician
    Posts: 38
    Joined: 02/20/2017

    How much extra cash flow do you have?

     

    Click to expand…

    Around 4k/month above our expenses and the 25% retirement savings.

    Thank you.  I’m realizing I’m so averse to temporarily slowing our retirement savings to cashflow something that it has put us in a very cash-heavy position 4 years into attendinghood.

    I guess I need to just dump everything left at the end of the month into our taxable account and come to terms with the fact we might need to temporarily back off on retirement savings when an expense shows up.

    #213229 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 1654
    Joined: 02/11/2019

    How much extra cash flow do you have?

     

    Click to expand…

    Around 4k/month above our expenses and the 25% retirement savings.

    Thank you.  I’m realizing I’m so averse to temporarily slowing our retirement savings to cashflow something that it has put us in a very cash-heavy position 4 years into attendinghood.

    I guess I need to just dump everything left at the end of the month into our taxable account and come to terms with the fact we might need to temporarily back off on retirement savings when an expense shows up.

    Click to expand…

    I am in a similar position and cam to terms with it sometime last year and dumped it all in.  I do not like the idea of less then 20% towards retirement but if you are usually putting in 30-40% and then have a one time expense causing the year to be 19% I do not think you will have a problem getting to FI.  I would not skimp on your tax advantaged accounts but holding off on taxable for a few months is worth it in my opinion if it lets you run at a lower cash drag.

    This is why getting rid of these fixed expenses is so awesome.

    “Never let your sense of morals prevent you from doing what is right.”

    #213234 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1749
    Joined: 01/08/2016

    Not sure what you are looking to hear. Some folks keep a lot in cash because it allows them to sleep at night. Others get twitchy with 50 cents sitting un-deployed.

    Sit down with your family and make a written plan. Good news is that you’re starting off with some excellent discipline.

    #213236 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 4229
    Joined: 01/08/2016

    How big is your efund?

    #213247 Reply
    Avatar Dr P 
    Participant
    Status: Physician
    Posts: 54
    Joined: 08/06/2016

    I agree with G that everyone is going to have a different comfort level with regards to cash.

    My strategy is constantly evolving, but right now, like you, I am setting aside money for certain expenses.  But these expenses are coming up this year rather than 1-5 years out.

    I’ve set up a spreadsheet to subtract the money I intend to save and monthly expenses from my monthly income and I invest the rest.  It helps me keep my eFund constant and it forces me to look at my monthly expenses to make sure I am not overspending.

    #213280 Reply
    Avatar Tuxedo 
    Participant
    Status: Physician
    Posts: 38
    Joined: 02/20/2017

    How big is your efund?

    Click to expand…

    $26,000

    #213308 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 4229
    Joined: 01/08/2016

    That sounds big enough to dip into if needed. Make it 30.
    Invest the rest.
    Rarely are these expenses true emergencies.
    You just divert cash the few months leading up to the event.

    #213309 Reply
    Molar Mechanic Molar Mechanic 
    Participant
    Status: Dentist, Small Business Owner
    Posts: 385
    Joined: 10/29/2017

    You state $26k efund, $4k surplus per month, and 25% saving.  That makes it hard to compare.

     

    I’ve  found that I like to fill buckets one at a time, and keep little cash on hand.  This is easier the more free cash flow you have obviously, so your situation is unique to you.

    Priority is to tax advantages early in the year then money starts flowing to taxable.    If expenses come up, all money flows to that until it’s good, then back to the plan.  I have no issue tapping a line of credit (business or personal) to smooth cash flow, but pay them down very quickly.  I’d rather pay interest for a month or four than forego interest/gains for two years.

     

    Perhaps some variation of this might work for you.

    #213311 Reply
    Liked by MaxPower
    Avatar Physicians Capital Management LLC 
    Participant
    Status: Physician, Financial Advisor
    Posts: 32
    Joined: 07/17/2017

    Take the Fire Your Financial Advisor Course.  Come up with a written plan.  The lazy man approach would be to just put some in the WCI’s (and mine) favorite mutual fund.  VTSAX.  Start with 3k (the minimum investment) and see how you feel.  Auto invest each month.  You can always sell it, but in general you should not be in stocks if you need the money before 5 years.  That said, there is no rule that says you won’t have access to your money before 5 years.  Vanguard makes a clever tax managed balanced fund that is half stock and half muni bonds.  You can park your money there so it does not fluctuate as much as the broad market.  It is a clever fund and I have written an essay on it.  If you want it, PM me.  There is no substitute however for a written financial plan and sticking to it.  Cash is a terrible investment and one of the biggest mistakes I see is that my colleague physicians have too much cash when they come to me for advice.  Good luck!

    #213313 Reply
    Liked by adventure
    Avatar Physicians Capital Management LLC 
    Participant
    Status: Physician, Financial Advisor
    Posts: 32
    Joined: 07/17/2017

    You can always sell the “lot” of VTSAX that you paid the MOST for.  That will minimize the tax in case you need the money before 5 years.

    #213314 Reply
    Avatar Tangler 
    Participant
    Status: Physician
    Posts: 345
    Joined: 08/23/2018

    if you need in less than 10 years, do not put in stocks. If you have a fat E-fund then you might not need cash other than that. It is a personal decision. No one can tell you the right amount of cash for you. I keep a skinny e-fund but that makes a lot of folks uncomfortable. I have zero debt, my wife and i both work, and we have no kids so we don’t need a lot of cash.

    #213315 Reply

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