This topic has come up in conversation many times, but the gist is, what do you do with a large sum of cash that you may or may not need soon (ie. emergency fund)?  Next year, we’re going to put aside almost $1000/mth towards our Roth IRAs – except we won’t know until March/April 2016 if we can contribute to our Roths or not (due to income limits).  There’s a really good chance we will be able to based on our deductions, but it’s not a 100% chance, so I don’t want to put money into a Roth to have to pull it back out again at tax time because we made too much.

$1000/mth is a lot of money to not have working for us.  Our best interest rate is 0.79% at CapitalOne360 (to give you an idea, we’re getting $45/mth on the 85k waiting for our house purchase).  If we put the money into our taxable investment account, I’m not sure that I’d go through the effort of taking it out as I’d pay a short term trading fee on at least $3k of that (I’m a buy and hold investor).  I need to research if Fidelity will let me transfer in-kind between the taxable and Roth accounts – then I can just move over $5500 of FSTMX and be done with it.  If we can’t contribute to a Roth for the previous year, it’ll just end up in our taxable account anyway.

The Roths are only going to have a max of 11k annually (unless we get another limit bump from the IRS), but our emergency fund will have almost 60k in it.  That’s a lot of unemployed little green workers.  I’m tempted to split how we deal with it and put 5-6 months in actual cash, and the rest in a taxable investment account with a relatively low risk.  I know we don’t want to be losing it all in a market crash, but at the same time, I feel bad for not putting it to work for us.

What do you do with your “cash” buffers/emergency funds?  Do you just leave them in a checking/savings/money market account or invest them more conservatively? 

We’re socking away a lot of money over the next few months. And I think we’ll have way more than we need come March based on a recent closing estimate from our mortgage lender. We use You Need a Budget for zero-based budgeting, and live on last month’s income, so I know at the beginning of the month exactly what we have to spend. We don’t have a “normal” monthly budget; it varies based on our income in the previous month. However, we do have some baselines each month that I then modify as needed.

Income

Our income is after taxes, 401(k) contributions and other paycheck deducted items (like an FSA, health insurance, and my parking pass). Our after-tax incomes will change again next year as we will no longer contribute to an FSA, but to an HSA instead.    This is November’s budget – which means, this is all of the income we earned in October’s paychecks.  The reimbursements is the guaranteed money we get from the FSA for daycare.  We spent the 5k legal limit early in the year (by April based on DC daycare prices), and I already filed the reimbursement, so we get $192.31 every two weeks until the end of the year.  We budget based on two paychecks per month for Dad (although he gets paid bi-weekly), and in those months where we have 3 paychecks, we use that entire paycheck (~$2100) for paying down debt, or putting more to investments, etc.

Expenses

Our Expenses are relatively low since we’re not paying a mortgage or most of the utilities (although I keep telling my mom to tell me how much she wants us to contribute to the Internet, Water, and Electricity bills – I’ve just been contributing $50/mth to her checking account).  Many of these expenses are not spent in a month, like car insurance – we pay it every 6 months – but we set aside the money on a monthly basis so it’s there when we need it.

We’ll also be saving less as we start paying on a new mortgage in the March timeframe (estimated principal, interest, escrow is $2200) along with all the other expenses that come along with owning a house – although, there’s a top to bottom warranty for everything in the house for the first year from the builder, so I don’t expect we’ll be spending much in repairs.

We use a VoIP phone line through CallCentric, and we brought it with us – that’s where the “Phone and Internet” line comes in.  We pay $1.50/mth for E911 service, and per minute for all other calls.  We tend to spend about $2 in phone calls since Dad works from home – it’s nice because he uses a softphone to join conference calls from his laptop.  I budget $5/mth which is a bit overkill, but covers are heaviest usage months.

Savings

We have a separate section for savings – money that we’re not planning on spending in the near future, or are earmarked for a want and not a “need” (although, a lot of the above are for wants as well).  These are things like saving for our new house down payment – and the appliances we’ll need to be buying, money we send to our after tax investment accounts, and money that gets added to the emergency fund.  Right now, the money sitting waiting for moving costs and the down payment is acting as our emergency fund, and anything left after I allocate the rest of the money goes to the emergency fund.   Once we’ve moved and have an idea of where that fund stands in relation to our car payment and investments, we’ll likely throw any “extra” to the car payment or (more likely) the taxable investments.  Until we’ve moved and settled, I’d rather have a large cash buffer though.

If you made it this far, you are a saint. I know there is a lot of room for improvement, but we’re limited in what we can do at my mom’s house as far as buying in bulk to save on the grocery budget, or using less gas (because she’s far away from everything). I’m hoping to lower our expenses somewhat once we’ve moved and settled, along with selling several things and bringing in some extra money.