Lubeboy

Is it bad to have too much money in a savings account? Besides investing, where else is a good place to keep money for emergencies and occasional splurges etc..?

Martian

It's not bad as such, but there are better things to do with it.

I use a savings account as a general sort of slush fund, so that I have instant access to a reasonable amount of money if I need it. The rule of thumb I believe is three months' living expenses, although I tend to keep slightly less than that available.

The problem, though, is that the return on savings accounts is pretty much negligible. Thus it works well for the purpose outlined above (especially if your bank is like mine, and waives all fees as long as you have a minimum balance in the account) for large amounts of money that you don't plan on spending in the near future, you're better off to invest that in something with more growth potential. Mutual funds, GIC's, RRSP's, whatever.

__________________
I wake up in the morning more tired than before I slept
I get through cryin' and I'm sadder than before I wept
I get through thinkin' now, and the thoughts have left my head
I get through speakin' and I can't remember, not a word that I said

- Ben Harper, Show Me A Little Shame

Baraka_Guru

In an investment savings account (ISA). The interest rates are higher than regular savings accounts (typically between 3 and 6%), and the money is always accessible.

I've heard some rules of thumb regarding cash for personal use as well: Have at least 1 or 2 months' salary (more might be better) in an easily accessible account, such as an ISA. This is good for emergencies, and splurges, as you say. There is nothing "bad" about having too much cash; there is only "better" if you use it for something else. There are limits you need to set for yourself to determine how much is "too much."

An example of a service for these accounts would be ING Direct.

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

Plan9

What is your occupation?

Retirement plan?

Do you have an IRA?

__________________
Whatever you can carry.

"You should not drink... and bake."

Willravel

My solution: Big safe full of gold in the basement. Gold is consistently gaining worth as the dollar dies soundly. It's safe, it's consistent, and if something happens to your bank, you're not SOL.

Baraka_Guru

Um... what if you need the value of the gold in cash....for emergencies.... like if your transmission dies? Isn't it a bit of a hassle to sell it off?

EDIT: Oh, and the value of gold peaked in the '80s, and still hasn't fully recovered.

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

Plan9

What about a giant vault of gold coins?

__________________
Whatever you can carry.

"You should not drink... and bake."

Baraka_Guru

Well, if the auto mechanic is okay with accepting bullions instead of currency, then I guess it would be fine.

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

Willravel

Obviously you don't keep everything in gold. I'd still have about $80k to play around within the bank. I'm still planning this myself, btw.
You mean before I was born?

Good link: http://goldprice.org/

Baraka_Guru

Yeah. I agree that gold is a good addition to balanced holdings; I just didn't see how it applied to the OP's needs. Gold is good as an inverse performer to stocks, just like bonds.

I would only hold a lot of cash during a bear cycle. Like now.

Thanks for the link. I'd love to have some actual gold stashed away. Seriously. But all I have now is debt.

I am what they call: "Know-how, no cow."

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

Willravel

Dude, only keep as many US dollars as you need. The things will be tissue paper soon.

Or are you keeping the cash in Yen or Euros? That's a pretty decent idea.

Baraka_Guru

I don't have cash. Only debt. If I had cash, it would be Canadian. And I'd be using it to buy American dollars right now (during parity), actually. I doubt the US$ will be tissue. You Americans are resilient. Worst-case scenario: Your government will cancel (i.e. default) its foreign debt. What's anybody going to do about it? We need the American economy.

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

Willravel

Oh sorry! I completely forgot (for only a moment, mind you) that you were a friendly neighbor to the north. BTW, your dollar is better than our dollar right now. Congratulations, I guess!

telekinetic

You shouldn't have very much if any money in savings if you have ANY renewable debt (credit cards mainly)...just a couple pay checks worth at most to ease a job transition.

If you're past that point, the savings account should, like Will said, keep the emergency money you think you might need for the next 3ish months (short term savings) in a 'what if' scenario...or, if you're saving to buy something.

Anything you plan on keeping more than a year should be invested somewhere that the return at least has a chance at beating inflation.

__________________
twisted no more

Cynthetiq

nothing over $100,000 in any bank. FDIC only covers $100,000 for each bank, not each branch, but each institution.

I have 6-12 months in CD ladders for emergency funds. It's 6 months salaries in current lifestyle, if we have to tighten our belts that 6 months can last 12.

__________________
I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not.

Willravel

QFT. Very good point, Cynth.

Lubeboy

I work in the web biz.

I got a 401k.

I don't have an IRA. Should I dump money into one?

Right now I'm holding my savings in an ING Direct account. I would move over to Emmigrant but too lazy and last time I tried signing up on their site it wouldn't work for some reason so I never went back.

Thanks guys!

eribrav

I think that many people believe this.

I say that it is not true. Look at the statistical correlations for yourself; you will see that this is a fallacy.

Baraka_Guru

I was taught that gold is basically a non-fiat money. But the only way it increases in value is via supply and demand, like any resource. The difference with stocks is that wealth is created through profits via labour and markets. This makes each perform quite differently given the situation. See this summary below, outlined by gold advising company:

Why Gold?

1929 Stock Market Crash a Buy Gold/Sell Stocks
The DJIA lost almost 90% of its value from its 1929 peak until its 1932 low and the Great Depression followed. During that time, gold rose in price by 69% (from $20.67 to $35.00)! As a result, by 1932, it took as little as 1.99 ounces of gold to buy the Dow compared to a stock market peak of over 12 ounces.

1969 Bull Market Peak a Buy Gold/Sell Stocks
Stocks not only declined significantly but also remained in a bear market for thirteen years until the existing bull market began in 1982! Meanwhile, gold rose in price by 2,382% (from $35.00 to $850.00 in January 1980)! At the Dow peak, it took 22.75 ounces of gold to buy the Dow. However, by January 1980, it took 0.89 oz of gold to buy the Dow!

2000 Stock Market Bubble a Buy Gold/Sell Stocks
History always repeats itself, though never exactly in the same way. Although the Dow is off from its highs, it remains extremely high relative to its historical PE ratio but also in relation to gold. At the end of 2003, despite a significant rise in the price of gold, more than 25 ounces of gold were still required to buy the Dow. That's down from its absurd high of nearly 40 ounces at the end of 2000, but still near its high at the time of the 1966 stock market peak, and much higher than in 1929 before the stock market crash.

Applying the broad based S&P 500 stocks also remain hugely overvalued. As of December 29, 2003, the S&P 500 PE ratio stood at 3.52 times compared to 10-year U.S. Treasury yields of 4.15%. Although 2003 was a strong year for U.S. stocks, we believe it will prove to have been nothing more than a very serious bear market rally in what we continue to believe will be the most serious stock market debacle since the 1930s.

Basically, gold is good for short-term strategies in bear markets. Stocks are good for the long haul (some would argue only on long cycles, not indefinitely). In some ways, gold is a good alternative to cash in times of tumbling stocks, since the value of gold doesn't act in the same way as currencies.

If you have other evidence, I would like to see it. I tend to have trouble finding straightforward long-term data online for this kind of thing.

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

Ustwo

Unless you are expecting everything to go to hell like will there is no real point to investing in gold.

If you put $100 dollars in gold at the turn of the century you would have less than $200 dollars worth today (adjusted).

Compare that to the stock market.

__________________
Agents of the enemies who hold office in our own government, who attempt to eliminate our "freedoms" and our "right to know" are posting among us, I fear.....on this very forum. - host

Obama - Know a Man by the friends he keeps.

jewels

Keep in your savings account the maximum amount you can afford to blow, because of it's quick liquidity.

Anything over and above that allocated "mad money" would wisely be invested in steps, keeping in mind your age and future long and short-term financial goals. The Emigrant account is good, but you can access funds transfers within 48 hours, so it's merely a savings account at a higher rate.

Check with your bank or investment professional. It's difficult to advise someone without knowing all the circumstances.

__________________
We are always more anxious to be distinguished for a talent which we do not possess, than to be praised for the fifteen which we do possess.
Mark Twain

Baraka_Guru

This is what I meant by short-term investing in gold. Bear markets are a cyclical reality. Gold has its uses.

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

Willravel

Google: "US dollar" and check out virtually every article written over the past year or so about it's worth. Had one invested in gold back in 1999-2000 (when the USD was rising sharply compared to the Euro), they'd be doing quite well now. Starting in 2001 and ending in 2003, the USD lost more than a quarter of it's worth vs. the Euro. Then it dropped off again and has continued doing so through today. The Canadian Dollar is now worth more. How soon till we hit the Peso?

It's the trade deficit (thanks, free market!), the budget deficit (thanks Republicans!), and the yen suddenly growing balls, not to mention the FED, and their basically criminal behavior that caused most of it.

eribrav

Ok, forget the long term.

Look at the last 3 years.

There have been large positive returns for stocks, bonds, and gold.

stevie667

If you have outstanding debts, you can pay off some of it with your savings, but do keep a nice 3-6 month wages reserve as others have said.

__________________
Office hours have changed. Please call during office hours for more information.

Barstool

I've always learned that you're supposed to have at least 3-6 months worth of comfortable living expenses saved up in the event of an emergency, or in case you loose your job and need money to pay the bills. In excess of that, you should re-examine your finances and see if all that "extra" money could be applied toward something more profitable - like a retirement plan, 401k, pension, CD, stocks, or bonds. Like mentioned earlier, savings accounts don't have a great return on investment, hence why I suggest investments or CDs/bonds. Also, you might want to look into "online" savings institutions like ING Direct or eTrade. They usually have 4-6% on their accounts.

Lubeboy

What's a good investment that has a great return of which I can get at any time?

Willravel

I can tell you that, but I'd be giving you the same advice I got from an insider and I'd be publishing it on a public website.

As they say: study. Investing is not easy, but it gets less difficult the more you study market patterns and trends, and if you can really learn to hone your ear to the ground skills, you can really come out on top.

Cynthetiq

There is no such vehicle that exists. What do you mean by good, great return, and get at any time? Those variables mean different things to different people for different reasons at different time periods in one's life.

You can however look to people who invest well and try to emulate them.

I recently read this wonderful businessweek article about some forums that are helping investors beat or at least hedge their bets by gathering information at a central point. People can compare individuals and what their portfolios are doing as opposed to what they are claiming and touting.

__________________
I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not.

Ourcrazymodern?

Dare I?
Of course I do.
I won't.

You can't eat gold.
You can't eat cloth promises.
You can't eat lies.

You can build yourself,
and you can imagine more,
it's showing, you know.

...Lubeboy!!!

__________________
BE JUST AND FEAR NOT

Baraka_Guru

This is good advice, except I would suggest that it isn't "you can," it's "you should."

Even "good" debt can be at an interest rate of 6% to 8%. And bad debt? As much as 18% to 22% (or more).

Tell me this: What is the point in holding savings when you're also holding debt? The only good reason I can think of is if you needed access to the savings in the short term. Otherwise, the savings should be used to pay off debt.

Why have a chunk of savings (let's say, $1,000) earning a paltry 3% when you have the same amount of debt that charges you 18%? Your net interest burn on that dollar value is 15%. You are essentially losing 15% of your wealth compounded daily.

The numbers:

$1,000 savings @ 3% = $30 earned in one year
$1,000 debt @ 18% = $180 charged in one year

Net interest burn = $150 for the year

Why not just use the savings to pay off the debt? The main legitimate answer would be if you thought you might need the cash in the short term. But if you were to use the cash to pay off the credit, couldn't you just use that same credit room if something did come up? What if nothing comes up? Is that worth $150 per year, $12.50 per month?

Even if you were to grow your savings to five times the value at $5,000, you'd still be earning less interest than what you'd be paying in debt interest. It would be $150 per year—still $30 short of your interest expense. Yes, you'd still be losing money even at a savings value of five times greater than your debt load. Suddenly you're looking at a lot of money going to your lender, and for what?

Tell me, how many investments do you know can earn anywhere near 18%? And if you do know of any, how many of them are as risk-free as the risk of somehow "losing" your debt from forces outside of your control?

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

abaya

Huh... this thread is back from the dead, but I like it.

I'm reading several different things here... keep 3 months' salary in savings, 3-6 months, 6-12 months... is this assuming a single person's savings account, or does it change if there are two incomes in a marriage relationship?

Assuming there are no debts (with either partner), I've always thought CD's were a fairly good investment. Living in Iceland, we haven't thought much about retirement plans (the state takes care of that for you here--so as a citizen, I could always come back when I'm older and use that money), but I think when we get back to the US, we'll have to look into those, as well as real estate. It feels very risky to me, to invest in stocks... does anyone have encouraging stories from their own investments on the market? Also, where's the best place to put money away for future children's education?--I would think a long-term CD, but that's just off the top of my head.

__________________
And think not you can direct the course of Love;
for Love, if it finds you worthy, directs your course.
--Khalil Gibran

snowy

As to college savings--you probably want to be looking at investing in a 529 plan. 529 plan - Wikipedia, the free encyclopedia In Oregon, we have a 529 program administered by the state, and other states typically do as well: Oregon 529 College Savings Network One disadvantage is that some 529 plans charge more fees than others.

__________________
If I am not better, at least I am different. --Jean-Jacques Rousseau

Baraka_Guru

People use different rules. You should assume the savings amount is for one person's income. I would say have at the very least three months' worth of income in a savings account if you want to use this security strategy. [EDIT: You basically want to cover yourself for a reasonable period of time for the unlikely event of your losing your job or getting sick or injured. How much time will you need to get back on your feet?]

I would myself, but my debt load is more of a risk than not having that amount in my savings account.

__________________
Knowing that death is certain and that the time of death is uncertain, what's the most important thing?
—Bhikkhuni Pema Chödrön

Humankind cannot bear very much reality.
—From "Burnt Norton," Four Quartets (1936), T. S. Eliot

Cynthetiq

but you can't 529 without a child... so you're stuck with using traditional vehicles until that time when there is a child with an SSI#.

re: the salary savings, it really is a matter of having enough funds to tie you over at a particular lifestyle until you secure new employment/income. Some people use the simplest formula like required monthly expenses (for some that includes discretionary spending because they have past credit card debt.) Skogafoss and I recalculated it to be our current expenditures and lifestyle for 6 months as we pay off our credit cards 100% each month. This gives us a choice to extend the 6 months to 1 year since we've included all discretionary spending.

Current finance people post 9/11 are now suggesting 1-2 years expenses for savings.

Bakaguru is right, it really depends on your own self and requirements. Health insurance covers your medical expenses, short/term long term disability cover a portion of your wages, but if you don't have those for whatever reason, it can be an expensive and potentially fiscally painful situation to work out of.

We recently took some extra savings and purchased another rental property in order to hedge future values of our 401k values. We would love to buy in Iceland even thought of figuring out how to finance and operate this place. If I recall it isn't far from where you live.

__________________
I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not.

abaya

Good to know--thanks, Snowy.
Makes sense--thanks, BG and Cyn. When we go back to the US, we won't have health insurance until ktsp gets a job--shouldn't be a problem (living in Iceland, we've almost forgotten what health insurance is like), given our age/health, but we'll be sure to keep plenty in savings to get us through that time. As soon as we're set up and established again, then we'll look into the next steps of investing.
Yup, I know that place well--it's a gorgeous building, right next to the house that ktsp would love to buy, someday. We've considered buying in Iceland, but we just can't fathom how to take care of it from afar--without begrudging someone in my family to be the caretaker, or renting it out to students during the winter (which seems risky in itself). But hey Cyn, our apartment is up for sale right now, if you're interested... the landlord doesn't seem to be having much luck in this market.

__________________
And think not you can direct the course of Love;
for Love, if it finds you worthy, directs your course.
--Khalil Gibran

ktspktsp

Yes, that's next to my favorite house! Judging from the price of the one you listed, I won't be moving to my favorite house anytime soon . That area of Vesturbær has some beautiful large homes.

Some of the rooms in that hotel are bigger than our apartment. If you buy it, you should rent us the jacuzzi suite .

More on-topic, I still don't know much about how to invest my money in the US. In Iceland I've been putting the extra money in my savings account (which is at 14-15% interest!) but the currency fell at least 30% against the dollar, so that sucked. Still by the time we get back to the US, that will be enough for a house downpayment, if we go that way...

Cynthetiq

what i'd like to include as well is that even when you are in a situation where you are using savings, other "emergencies" and unforsee spending pops up too like car repairs, flights to visit sick family, etc. It is one of the reasons why we tried to pad our emergency fund as opposed to being conservative with the numbers.

damn.... too late! yes, we don't know how the property management aspect works out over there. The old guard was that most owned and few rented, but that demo has changed in the past decade. What's the sale price?

__________________
I don't care if you are black, white, purple, green, Chinese, Japanese, Korean, hippie, cop, bum, admin, user, English, Irish, French, Catholic, Protestant, Jewish, Buddhist, Muslim, indian, cowboy, tall, short, fat, skinny, emo, punk, mod, rocker, straight, gay, lesbian, jock, nerd, geek, Democrat, Republican, Libertarian, Independent, driver, pedestrian, or bicyclist, either you're an asshole or you're not.

abaya

I didn't know that you were looking for a place in Iceland--she's had it on the market for a few months now. I believe she's asking for somewhere around 18-19 million kronur, which makes sense given the square footage.

__________________
And think not you can direct the course of Love;
for Love, if it finds you worthy, directs your course.
--Khalil Gibran

ktspktsp

It's pretty small btw, 50 sq meters. You could rent it out at 130.000 - 140.000 without much difficulty (we pay a bit less than that now, but if we were going to start renting now it would cost us that much). Note that Icelandic mortgages are pretty scary, as they are given in Krónur, yet the principal is indexed to the inflation. So since inflation has been close to 15% year-to-date, that means the principal of the average mortgage has risen by that much. Crazy.

/threadjack