Friday, January 06, 2006

Cash flow

I have decided to cut back my 401k contributions to 10% for the next few months, just to be sure I have cash on hand for closing costs and moving expenses. Some of my money is in CDs that don't mature for a while, so although I should have at least 7 months' living expenses on hand after I move, not all of it will be liquid right away. I don't have any specific part of my money designated as an emergency fund. I guess I've always just considered all of my money to be one big emergency fund! Of course I'd like to think I won't have any dire emergencies, and if I did, I could always cash out a CD early and just pay the penalty... but I think I'll play it safe, and then after I move, change my payroll deductions back to a much higher amount.
Fortunately I already maxed out my 2005 Roth IRA contribution, so I don't have to worry about doing that before April, and I'll have plenty of time to make the 2006 one later.
I'm really committed to maxing out my retirement savings, so part of me feels like I should never back off from those payroll deductions (or else Caitlin will think I'm a hypocrite)... but I see this as just a timing issue. I am still resolved to get to the maximum by the end of the year.
It's all a balancing act right now-- my 10% deposit check has now been cashed, so that is the first big chunk of cash to go bye-bye. I need to have another 10% plus a large amount to cover closing costs, all of which I'll detail in future posts. In the next couple of months, one of my CDs will mature, and I hope to receive a decent bonus and a nice tax refund. If these come through, and if I can keep on track with my savings each month, I won't have to sell as many of my stocks and mutual funds. But it is a little nerve-wracking trying to make sure I'll have all my funds in the right place at the right time! I guess it's been a long time since I didn't have enough savings not to have to worry about cash flow. There was one instance a few years ago where I racked up $11,000 worth of business expenses and then had to pay the credit card bill, as well as movers, an apartment fee and security deposit all at once before my expense reimbursement check came through-- that was a little scary. But somehow I ended up being able to juggle things and it all worked out. And the frequent flier miles were worth it!


cashmoneybrother said...

don't underfund your 401k just to keep to some mythical "7 months living expenses". Don't forget, your Roth is easily liquidated and could be used in an emergency. Morevoer, you have a certain period of time to repay it. I would suggest just underfunding your "emergency fund" because more pretax dollars go into the 401k than the roth thus in a pinch you can raid the roth first, then repay later. just food for thought.

Caitlin said... I think I am changing my mind about having a lower 401(k) goal for I definitely understand what you mean about timing. We're aiming at getting it all done, but we're focusing on "free cash" first (me for emergency fund, you for funding your house purchase) and THEN the 401(k). I dig it.