No BS Finance

Tonight I started towards achieving goal #1 for 2008 - rebuilding our emergency fund to where it needs to be.This won’t get us all the way there, but starting with my next paycheck, $50 is automatically going into our ING high-yield savings account.

We’ll have extra money most months to add to that, but doing some automatically really does make it seem painless.

Here are my main financial goals for 2008. After a successful, but somehow not fulfilling, performance in 2007, I’m hoping these keep me inspired all year long.

1. Rebuild the highly-liquid (non-CD) portion of our emergency fund. We currently have 5-1/2 months worth of expenses covered in total, but most of that is tied up in longer-term CDs. Let’s call it 50/50 between readily available and not-so-liquid. This is a two-pronged goal - get this fund back up to 7 months of savings, of which 65% is immediately available. If disaster hit, that would allow us to live for 4-1/2 months without needing to make any major changes to our lifestyle (which I’m sure we would).
2. Similar to the above, I’m counting our short-term CDs liquid. I’m not too thrilled with that as available cash could get overly tight easily. So, I’ll either move half of the money into high-yield savings or set up some sort of short-term CD ladder where money will be coming free every month.
3. My car is 10 years old in April. While it’s still in good shape, now is the time to start thinking about how I’m going to replace it. I’m not a car person and shy away from used cars, so I’m leaning towards a new car. I want $5,000 set aside in 2008 for the car, which I hope to not need to replace until 2010. Ideally I would be paying cash for the car when I need it, unless the dealership offers an incentive like the last time we bought a car.
4. Too much of Mo’s retirement account money is sitting in the default money-market slot. By the end of January, we will finally make the decision on how to invest it.
5. Save $1,000 in a non-retirement brokerage account. If we ever really want to retire early, we need money outside of the tax-advantaged accounts that have age restrictions on taking withdrawals.

Here are what some other people are doing for goals this coming year:

• Living Almost Large
• Dedicated to Financial Freedom
• Toxic Money
• Dreaming of Money
• Goodbye Debt

Here is how I did against my 2007 goals:

1. We did add $1,000 to our new CD when the old one expired. Unfortunately, we drew down our liquid savings for other reasons, leaving CDs as 85% of our emergency/flex money.
2. We paid an extra $5,000 on our mortgage in April.
3. We increased our monthly contributions to the kids’ college funds, as anticipated.
4. Heh. I never developed a passive income stream of any consequence.
5. We failed to open a taxable brokerage account for non-retirement savings.
6. We did save for our January 2008 cruise in its entirety.

Overall - not too bad, although we did spend big money on replacement windows after having a miserable winter last year. The money came directly from our emergency/flex fund and we really need to get that money replaced. Once we do that, we can get the new brokerage account going. I’m also concerned with tying up too much money in CDs.

Now is the right time to look ahead and set some goals for the upcoming year. Here are mine:

1. Complete the beefing up of the CD-ladder portion of my emergency fund. This will be done by adding $1,000 to a new CD in December. This will put about 40% of the fund in laddered long-term CDs, with the rest in short-term CDs and a high-interest money market account.
2. Either pay down $5,000 extra on the mortgage by June, or use the same money to fully-fund my spouses Roth, with the extra $1,000 going into mine. This is an either/or, since I’m not convinced extra retirement savings is the best use of our money. To retire early (age 55 for me), we will need the house paid off and have money to live off of that aren’t tied up in accounts we can’t get to until we’re older.
3. Increase the monthly contributions to our children’s 529 plans from $100 to $150 in May.
4. Put in the time and effort to develop a passive income stream. This isn’t fleshed out yet, and may or may not be related to my stable of websites.
5. Open a brokerage account to save money not needed for retirement (see 2 above) or for the emergency fund.
6. Save enough for a 2008 family cruise. We’re estimating that $6,000 will be what it takes.