Cash Is King: Now What Should I Do With It?
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Money 2 My wife and I are lucky. Really lucky.
The economy is in shambles, the housing market is still trying to figure itself out, job security is a thing of the past, and Lost is still confusing the crap out of me. But we still feel incredibly lucky.
What could possibly so much relief to a person's life during these times?
How about a huge pile of cash? Me and my wife, we've got it. We got married last year and got tons of cash gifts, which was incredible. Plus we've been saving as much money as possible for the past couple of years for a down payment on a place. But we're not sure we can afford the place we want just yet. We may be another year or so away.
So having this pile of cash has given us peace of mind like you wouldn't believe.
But it's also paralyzed me with a new set of decisions I never thought I'd have to face: what should I do with all this money?
The plan is to buy a place, yes, I get that. I should probably stick to the plan. But here are some other ideas I probably need to be talked out of (fast!) before I get lured in or before my wife finds out about some of them:
- Travel: People always say that they should've traveled more when they were young, but they just didn't have the money. Then when they're older they can't because they don't have the time. Well, I'm 28 and I definitely have the money. With this much money, you can make the time. We have no kids, either, so we're good there. It's tempting to sketch out a trip to Argentina, a cruise to Alaska, and a safari through the Serengeti and just do it. Both my wife and I would love it. Probability: C-. I'm just too chicken to do it.
- Baby money: We're thinking of bringing a mini WC Porter into the world within the next year or so. Since I'm a person that tends to freak out, having a lot of money set aside for baby stuff (diapers, bouncy chairs, sippy cups) would make me feel more comfortable about it. I'm sure I'm overthinking this bit, but it's something totally new and kind of scary, so at least I could come home to my pile of cash and find some comfort. Probability: C. It's kind of silly.
- Cushion: Keep it all where it is (ING) and don't touch it. Maybe we both get fired next week and this is what gets us over the hump. They call it an emergency fund for a reason. Either way, having it in the bank is an incredible stress reliever, especially when so many people are losing their jobs. If I didn't have the cash and I got fired, guess what I would do? That's right, I'd be doing the freak-out dance. Probability: B. It's the sensible thing to do.
- Down Payment: Use it for what it was meant to be used. Revolutionary, no? We've wanted to live in our own place for a long time, we just haven't seen something we can afford that we love. So maybe we hold out until we do (prices need to come down just a tad more). Plus there are some breaks out there for 2009 that would help us out. The only thing is that we would be blowing a TON of money on the down payment, which makes me nervous—I would miss my pile so much. And having a baby while signing mortgage papers at the same time? Paging Dr. Stress, Dr. Stress please. Probability: A. It's the original plan.
- Double it: This is the latest one that jumped into my skull the other day. I look at what Citigroup's stock has done over the past week or so (doubled) and the huge rally the market had on Monday (up 7%), and my head starts crunching the numbers: "So if I had bought Citi stock at under $1, that means my pile would be at—" And then I start freaking out. If I managed to double this pile of cash we could buy a really nice place, travel a ton, and still have enough for the baby's diapers. Probability: F. My wife would stab me with a pen and then divorce me...unless it worked.
I think it's pretty obvious what we should do. Or at least it's obvious what we shouldn't do.
Are there any other possibilities I should consider? After all, when else am I going to be young, rich, and in the driver's seat?
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Or you could invest the money in a college savings account for your future child. It would help your future child avoid student debt.
Thanks,
Nate
Invest the money! Take a look at what $10,000 invested at the bottom of the last bear market was worth 10 years later! Invest! Keep it as safe as possible - blue chip stocks and corporate bonds.
Many people would kill to be in your situation.
(Hope I didn't sound greedy.)
@Stephen I'm surprised to hear that! I was expecting more conservative, responsible feedback!
The Writer's Coin | Follow me on Twitter
As Suzie Orman suggests, don't invest in the stock market if you think you'll need the money within 5 years. Or was it 10?
I agree with what Stephen has to say. Even if we're not rock bottom (which I think was 3 weeks ago), buying now and holding for 5-10 years is definitely worth it.
Just make sure you spend that money wisely! Looks like you guys are in a very fortunate position. Good for you.
Save it for a rainy day, and invest when you know the market has rebounded. I'd rather miss the initial 20% jump in the market and settle for 10% after the fact than put my money in too early and wind up losing out. You don't need to chase the best returns, just the returns for what your financial goals are.
http://missmoneypenny.squarespace.com
Please Read "The Intelligent Investor" Benjamin Graham / Commented by Warren Buffet.
He talks about a 25% Stock / 75% Bonds -> 75% stock / 25% bonds.
One of the best books to read if your thinking of investing. (Be VERY careful about this recent 20% move up.)
I also got piles of cash. I've been debt free but the house on a big income for a single, for awhile now. I am single, and got way more than a 6 month emergency fund. I earn 102K a year.
I can't help but think that I'll need wheel barrows full of cash to buy a donut, with what Obama is doing. Just this past week, I learned that a family of 3 has gone into debt, because of Obama's spending, of $116K and it is accelerating.
What happens if we got to do another war because of an attack by Osama? What happens if we get into another world war? Who's gonna lend the USA more money????
I do not know what to do. I am true believer that one, or a government, cannot borrow their way out of debt, but I have little control of it.
It is time for the normal people to unite, and get rid of all of them!
Edie
You want everything but don't want to pay for it (in taxes). Defense isn't free, your lifestyle isn't defined or created by you alone, and who exactly is going I make it any better? At least offer a solution.
I'm good with buying a house, but I'm wary of buying a place you love. What about trading up? Or fixing up? It's a huge mistake to put all your money into a house when you're planning kids too. Good luck!
Go on that Alaskan cruise! I went for my honeymoon and it was amazing. A good weeklong cruise for two plus airfare will set you back $2k, if that. Do it. You won't regret it.
Setting aside a grand or two to cover initial baby expenses is a good idea. I saved $1k before my son was born and it got us a LONG way, and we didn't receive much baby gear as gifts.
Always be sure to hang onto a hefty emergency fund.
Finally, keep on saving for your house. You want to make sure you can totally afford it before moving in, especially with a baby.
You can have your baby while renting. It's not so bad.
I Think you must save this now and wait for things to improve before you become little more adventorous with your money.. There is a reason why cash is king today.. stick with the king..
If you have doubts as to the security of your jobs, the best thing to do would be to leave cash where it is, or invest very conservatively.
@Jan, in my area, the whole idea of a "starter house" has pretty much melted away. In the hot market that isn't anymore, you could buy a little "starter", fix it up a little, and flip it for a profit after 2-3 years. Those days are gone. I think WC and his wife should find a place they really like, in their price range, and call it good for the foreseeable future.
As for my thoughts on what to do with the cash, I'd treat it like investment proceeds and take some profits. Take that vacation ("babymoon" in _one_ of your dream locations) and then put the rest to work.
@Kacie I like what you're saying. We're very conscious of not totally blowing all our cash. FOr emergency fund purposes and for the baby.
I'm feeling like renting for another year wouldn't be so bad. I doubt the market will "pick up" fast enough to leave us without any good deals in a year vs. now.
The Writer's Coin | Follow me on Twitter
If you are looking to buy a home soon-- find a a high interest money market account and park it.
Also, look to see if you are bleeding cash through a hih rate loan or credit card and resolve the leak-- otherwise go back to recommendation #1.
Good luck.
The most sound financial advice you can get for your cash is here: www.daveramsey.com
Just follow his "baby steps" and get out of debt, then save your cash for 100% down on your house. That'll keep you feeling secure for decades to come.
I am 53 and fortunate enugh to have traveled some. I have been to Canada, Mexico and Uzbekistan. Physical problems are now cropping up and my list of things I would have love to see before dying is way too long.
Life is so short and the previous post about "maybe we will be attacked" etc is absurd.
Oh how I wish I had seen every country on this planet!!
Having more cash around then you know what to do with is one heck of a great problem, so kudos for getting "stuck" in such a predicament. My vote, especially if you've got enough for 20% down on the home price you're thinking of, is do a little of the things you're thinking about. Money isn't just for saving. You've got to live a little. If you have a dream of going to Argentina, Alaska or wherever and you can afford it without jeopardizing your home ownership plans, do it. In this economy, you're likely to score some great deals (we just got non-stop air tickets to the Caribbean from New England for less than $300) and you'll have a memory for the rest of your life. Trust me, it'll come in useful during those 3AM feedings and diaper changes.
Actually, I agree 100% with all the letter rankings you gave to each of the possible scenarios. this is absolutely the best time to buy a home and i'd hate to see you miss that opportunity if you delayed a few years and then home prices began rising again.
That being said, travel is awfully alluring.
Good luck!
If you have a pile of money, you don't have an either/or situation. Take a few k and travel a bit. Don't have that baby until you are ready to be seriously tied down for the next several years, but do save up for the little blighter. Home ownership is overrated -- it's as expensive as renting, you have little flexibility, plus you have to do all the maintenance. But still, owning your own home is the American Compulsion, so continue to save for that as well. And give yourself a few k to play with in the market. You will make some money, lose some money, and be well entertained without suffering horrendous losses.
You might consider Learning "Active Speculation" along the lines of your "F" plan with a very small sum.
(I'v been studying the markets some 6 months now, and opened a 500$ account to trade.)
Checkout EvilSpeculator and SlopeOfHope
(I'm playing High-Risk / High-Reward (Options), that's why the 500$ account works. THIS IS NOT FOR YOU! )
If you saved the money for a house, and you still plan on buying a house, you should save the money for a house, unless something else more critical has come up (like the baby maybe). If you're good with the amount you have now, move on and start saving for the baby or vacation or whatever. Or increase your nest egg to make things more affordable for you. Never a bad idea!
It depends on what you mean by a 'huge pile of cash'.
I would certainly buy a house & get established before having a baby, if at all possible.
I would not put every penny down on the house, as you need to keep an emergency fund in place, especially once you own a home.
Depending on the amount of cash you have, and whether you can delay the baby issue, I would consider the following:
1. Keep your house down payment in savings until you're ready to buy. Continue adding to that savings as possible.
2. Use a specified amount to take one nice trip, as this might be more difficult after buying a house & having a baby.
3. Consider using a small amount (maybe $1-2K) to invest in the stock market.
4. Look for a better place to hold your savings than ING (which is down to about 1.49% interest now).
5. Be conservative about your spending on unnecessary items (extra clothes, accessories, eating out) and start a savings for future baby expenses.
My money is in an ING account at the moment, but I'm going to open a high-interest checking account at a local bank (4.5%) because I can meet their requirements to get that interest. I'm also looking at investing maybe $2k in the stock market, as I can afford to risk that. Not much, but I want to give it a try.
What you consider to be a huge pile of cash at age 28 may not impress you quite so much when you're 40. So don't get carried away.
You will never, ever regret having more saved than you immediately need. Remember that even a short-term illness, unemployment, or other disaster can wipe it all out. So when you have that baby, be sure you're in good shape with health and life insurance to protect your savings and your kid's future.
That doesn't mean you shouldn't spend a dime on travel or other pleasures. But keep it small.
The answer is the same as good investing:
diversify.
There are the sensible answers I was expecting! I was half kidding when I wrote this because obviously I would never throw 100% (or even 30%) of this money into the stock market. That would be irresponsible.
As for The Intelligent Investor: it's one of my favorite investing books and I'm actually a huge Buffett fan. I've read Buffet and The Snowball and I'm a bit fixated by him.
Just so you all know, the money is staying in ING for now and will probably be used for a down payment down the line at some point. Not all of it, that's for sure, but a fair chunk.
The Writer's Coin | Follow me on Twitter
Give your money away to those who have nothing. You will feel good about yourself.
I too feel your pain and believe the answer lies in taking the least risk of risk. Thus you merit without overextending. Steady growth wins the race time and time again.
If you will be going from 2 incomes to 1 when you have the baby then keep on saving. Newborns are cheap -- they need anything but diapers in the beginning. And a car seat. They don't care about all the fancy gear -- that's something 'everyone else' says you should have.
I do think the idea of focusing and keeping your eyes on the prize is key. Think of it this way-- Do you really need to go out to eat? Wouldn't you rather travel? When you set up small senarios and stay focused you can accomplish a lot.
I do think you should take a trip before you're saddled with the house and kids. Depending on your 'huge amount' -- maybe a $3k trip. Because you'll never do that again (until it's time to take the rugrat to Disney).
I agree with others -- play the market but only get in for $1-2k. Something that if it disappeared tomorrow (which it might) you won't be devastated over.
Keep saving but don't forget to live!
#31 brings up a good point about taking the big trip before the baby comes. And we've talked about it with my wife. When it hit us that we probably had "one more big trip" left in us it was kind of depressing.
That's life though.
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I just wanted to say, I don't think it's a silly idea to have a pile of cash set aside for the baby's birth. Not enough to buy a house, of course, but with money set aside, if things don't go well at first, you'll have money to buy whatever food you feel like eating when you feel like eating it, whatever baby supplies suddenly seem impossible to live without, and anything else that will make the next hour, day, week tolerable.
It may sound crazy now, but when my oldest son was born, life was a nightmare. He was colicky and not sleeping, I had postpartum depression, and breastfeeding was going badly for both of us. I promptly spent $350 on a high-end breastpump, $300 for an in-home consultation with a lactation consultant (following a $100 consultation with a different consultant who was awful), and $250 on formula, most of which we never used but which seemed absolutely imperative to have at the time. Needless to say, we weren't concerned about our net worth during those tough times – the only thing that mattered was survival. It took a couple of months to finally get to a place where things didn't seem so crazy, and I'm glad we had the money set aside to spend on whatever made survival possible.
(Which isn't to scare you off from having a kid - being a parent is the most fabulous, craziest thing I have ever done!)
Talk to your wife and listen to your own gut feelings and follow it.
But here is free advise anyways;
1. Pay any debts you have
2. save for emergency fund (if you do not have it, or not enough)
3. save, invest some for future (house, baby, car etc)
4. give small amounts to people who need it more than you
people who have lost thier homes, behind medical bills etc, you will feel lot better.
my 2 cents,
Since you're untethered, why not take a year and teach in Patagonia, Chile? http://bit.ly/MxsO8. It's the travel bargain of the year - $1200 for 12 months including homestay and meals. You even get a small stipend. I'm sure you know there are tons of programs like this. Seriously, it's a cliche, but so true: do it when you can. When will you be in this position again? You don't want to look back and say "I wish we'd..." All you have is now, after all - at least according to E. Tolle.
Best of luck with your decision!