Wednesday, April 23, 2008

This Month Our Cash Flow Is Negative

Typically C and I are very good about spending less than we earn every month without a real budget. Not so this month.

1. We paid about $6,500 in taxes. I wasn't expecting it to be that much.
2. We finally bought our plane tickets for our upcoming month-long vacation.
3. And we both maxed out our Roth IRAs for 2007.

Granted the last item is actually a form of savings, but it feels like spending since it's harder to withdraw the money (whenever there are penalty and fees involved, I don't believe in taking the money out).

So with all of the expenses listed above, our checking account is down a lot. Normally we wouldn't even have enough money in our checking account to cover all of those items, but about a month ago, I realized that the interest rate on an ING Checking account with a balance of over $50K was actually higher than the interest rate on the savings account. The rate isn't that different, but when I saw this, I realized that I was potentially missing out on $100-$200 in the course of a year.

C and I have several sub-accounts in ING for our home down payment, emergency savings, vacation savings, and my early retirement contribution. All together, these totaled over $50K so I decided to put it all in the checking account.

Now the thing that is unclear to me is where should all of this spending be coming out of? Obviously, the plane tickets come from our vacation fund. But do taxes come out of our down payment fund or our emergency fund?

I'm not sure putting all of our money together is a good idea since it is hard to control spending and savings goals. I know I could just spend 30 minutes a month working on it, but I must admit. I'm lazy.


budgets are sexy said...

Hum...that's a tough one. We have a "house fund" where all mortgages, taxes, utilities, etc come out of, so i'm not sure what to say.

I'd guess your "down payment" fund since it's house-related? I'd DEF. not take from emergency, as it's not one. Unless you have too much in there.

GREAT job maxing out both of your Roths :)

Tim said...

Combining all of your accounts together to get the higher interest rate is definitely a good idea. You dont need to have separate physical accounts, instead use one like you have done, and keep track of the different types of "funds" within that account using excel or something. Just keep a running tally of your different goals and how much of the total account balance is allocated to each goal.

For example:
Total Account Balance: 10,000
Emergency Fund: 2,500
House Fund: 5,000
Vacation Fund: 500
Earmarked for Roth: 2,000


Ms. MiniDucky said...

I've opted to create an entirely separate tax fund because I estimate a bit on the high side for my taxes, and I tend to think I have more "undedicated" money than I really do if I don't have sub-accounts.