I have made a (temporary) change to the amount I contribute to my 403(b) retirement account. After making a few major purchases, it’s time to rebuild our cash reserves.
Our income has been down, just a bit, as compared to this time last year – and expenses have been up. We now have three kids, and our youngest is still in diapers. As a family, we are trying to eat at home more often, and we are focusing on fresher, healthier (and therefore more expensive) foods. I also used some of the money in our cash reserves to purchase some additional (and un-budgeted-for) disability insurance. We also purchased a new computer – a MacBook that I love – and a new lawn mower – which I also love. Adding it up, we’ve spent more this year than in previous years, and now it’s time to reign in the spending and rebuild our reserves.
One interesting thing that I noticed over the course of the last few months, is how strange it feels to buy things, even things we can afford. In the past when I used a credit for most “major” purchases, I would focus on monthly payments, barely giving a thought to the real cost of each item. Now, as I move through life paying cash, it “hurts” to spend money, because every dollar, every single dollar, comes straight out of our bank account, right up front. Buying a $1500 computer requires – surprise, surprise – $1500.
The season-of-splurging (if buying a laptop, insurance, and a lawn mower can be considered splurging) has come to an end. We are going to focus on rapidly rebuilding our cash reserves. Here’s our quick-and-easy plan for piling up the cash.
1. I will temporarily reduce contributions to my 403(b) account. By temporarily, I’m thinking six months, or less. Reducing my contributions will increase our taxable income, but we are willing to “take this hit” in order to rapidly build our cash cushion.
2. I will automatically deposit a set amount, at the first of each month, into my online savings account.
3. At the end of each month, any extra money that I might have earned from blogging or eBay sales will be deposited into the savings account.
4. We will fine-tune our budget, cut out the fat, and go back to our more-frugal ways.
For the first half of 2009, I’ll freely admit, I’ve been a bit more “relaxed” than I could have been. I needed these six months, to focus on my family, my commitments at work, and my health. Now, however, it really is time to “get back into the game” and get serious again. It felt good to spend a little money, and it will feel just as good to rebuild our savings.
Side-Note: I consider “cash reserves” to be any money not allocated to retirement or education savings accounts, and above our standard six months’ of expenses “emergency fund”. Also, even with the reduction in retirement account contributions, we will still be contributing more than 15% of our gross household income to retirement savings.
15% not bad. Just curious, what % of your gross household income do you normally contribute to retirement savings?
@Ryan, At the beginning of the year, I think we set our goal at roughly 30%? It’s something like that. My 403(b), my Roth, my wife’s Roth, her pension, and the work related SEP IRA…
How do you like the Mac? I am looking to get one once I save enough cash. Is it a big adjustment from a Windows based PC?
Wow! You were really out of control there for a while, what with the crazy purchases and all! Kidding of course but I understand about the need to reign it back in, even when you haven’t necessarily gone crazy with the spending. We’re doing that too after being a little lax on our budgeting and discretionary spending the past month or so.
And I would have to say that although that $1500 price tag does sting a bit more now that we’re paying with cash too, there is something so freeing about knowing that the purchase is done and over with and I won’t have to be paying for that purchase for the next x number of months!
NCN,
Would you have 6 months expense and also emergency fund in other account? what do you and other pf blogger recommend?
I would prefer both, but it becomes too much cash sitting, not earning much (in savings) and not reducing debts. What is everyone’s take on it?
Curious…
Regarding PS question regarding cash reserve vs. emergency fund…this is what I do: I maintain multiple sub-savings accounts at my credit union. For example, I have a 1) next auto fund, 2) family health fund, 3) family fun fund, 4) home improvement fund, 5) income security fund, 6) emergency fund. Every payday, a certain amount is automatically transferred into each sub-account.
I like that if we need a dental or vision co-pay, it comes from the health account…if we need work done around the house, it comes from home improvement…and next time we need a vehicle…
Our emergency account is for true but regular emergencies – appliance goes, brakes fail, etc. We keep this at $1000, and when it dips below that, we resupply it. Our income security fund is a work in progress. The purpose of this fund is to offset the long-term loss of one of our incomes. Our goal is six to eight months of living expenses; perhaps 10,000-12,000 dollars. We’re on our way, but not there yet. Being a ten-year teacher, my income is very stable anyway…but just in case…
Don’t reduce your contributions for retirement. Just because your reserves are low right now doesn’t mean you should cheat yourself in the future! Taking a “hit” on taxes is stupid – keep contributing the money tax-deferred and find other ways to scrounge…