FB Funds Revisited with some logic attached

FB Reminder: I am away on vacation right now. This post has been scheduled ahead of time.
I won’t be moderating comments until end of August 2009. Thanks for your patience!

I’ve already mentioned this before, but I have created a new method of determining the importance of funds and answering the age old question of: “Do I pay down debt or save for retirement?”.

In my case it will be: “Do I save up for a mortgage or save for retirement?”.. or something along those lines.

You know what I mean, it’s the same topic: money allocation.

I’ve been throwing around an idea for a while in my head, and I thought I’d hash it out here, since I want to make sure my money is properly allocated in terms of being ‘fair’ and covering all aspects of my life.

THE PLAN

I am going to show my logic for the 3 levels under each fund:

1. Bare-bones
2. Comfortable
3. Extravagant

The minimum that I must put in each of the funds before trying to is “BARE-BONES”.

If I have extra money left over, after distributing everything among all of my BARE-BONES funds then I’ll upgrade each fund in sequential priority (starting with Emergency Fund), so that it’s fairly and logically distributed.

Whaddya think?

Priority #1. Emergency Fund (EF) of 1 year’s worth of living expenses

Will only be used if I run into some dire situation like losing my job, never finding another one for 6 months, or having to take time off unexpectedly.

I am not assuming that I should be saving in general because if I have money left over, I’ll just leave it in the Emergency Fund and not touch it.

I am not assuming that I should be saving for retirement because we’re in CRISIS mode here if I have to touch my EF!

It’s also staying totally liquid (in a savings account or in bonds or something very low risk and easily withdrawn).

Note: These numbers are JUST for 1 year, and I’d prefer it to be at 2 years for an Emergency Fund, so whatever I have left over, I throw into EF to bump it up to 2 years.

Bare-bones: $8,400 @ ($700/month)

$700/month breakdown:

$385 – Rent
$200 – Food
$115 – Other

I don’t like this option but if I had to, I’d NOT have a car, use public transit and only spend money on food and basically live on as little as possible.

Comfortable: $24,000 @ ($2000/month)

$2000/month breakdown:

$1000 – Rent
$300 – Food
$500 – Car
$200 – Other

This is ideally what I’d like to save as my true minimum, because I heard that in Dallas you kind of really need a car. Badly. And if I am travelling a lot, there is no way in hell I am going to be trying to bum rides or take public transit any longer.

I don’t even know if the $500 amount is reasonable for car expenditures which should include:

Insurance
Gas
Car Lease (if I have one, I may buy another second-hand outright)
Maintenance
Other Car Stuff

Extravagant: $30,000 ($2500/month)

$2500/month breakdown:

$1200 – Rent
$600 – Car
$400 – Food
$300 – Other

I can’t imagine this number being realistic, but if I have cash left over.. *shrug* The more I have saved, the merrier. It just means that if I had a lower budget than what these levels are allowing, I’ll just be able to ‘live’ for more than a year.

Just because the money is there, doesn’t mean I’m going to spend $2500/month. It’s just a nice cushion.

2. Priority #2: Retirement Fund

This is to be contributed to, unless I am in crisis mode in which the Emergency Fund kicks in and ALL retirement saving stops until I find a job and get out of crisis mode.

I don’t know what the ceiling is for retirement savings is in the U.S. so this may have to be re-visited entirely because in Canada I could only save a certain amount in tax-deferred retirement savings and then the rest was taxable.

Bare-Bones: $4,800/year @ ($400/month)

My old wage was around $3,400 net a month. So if I had a Bare-Bones Lifestyle of $1500 a month, or even a Comfortable Lifestyle at $2000/month, I still had about $1000 to $1500 to play with, so $400 is reasonable for bare bones.

I think I clearly covered this for this year only because I just threw in $3500 in the last week or so (maybe more) and now my retirement accounts at TD are up to a Book Value of $10,000 which means I don’t pay the $25/year fee any longer.

Comfortable: $12,000/year @ ($1000/month)

This is what I should be regularly saving and is doable as I would still have some money left over.

This is clearly all before other big expenses like a home, etc. Then in which case, this all has to get revised.

Extravagant: $18,000/year @ ($1500/month)

This is a bit over the top, but would be my ideal without going too crazy and OVER saving for retirement and not leaving enough to have a good lifestyle on and have adequate savings.

3. Priority #3: Regular Savings

I guess this could have been lumped into retirement savings, but I want these regular savings to be semi-liquid (meaning able to be withdrawn at a moment’s notice), and able to be used without feeling guilty.

It also frees me up to NOT touch my EF because that EF is persona non grata unless I am in crisis mode.

I also wouldn’t touch this money unless I went a teensy bit over on some budget that was unexpected.

Bare-Bones: $1200/year ($100/month)

Comfortable: $3600/year ($300/month)

Extravagant: $6000/year ($500/month)

4. Priority #4: Slush Fund

No real goals on this one. Just save whatever’s been left over in the budget and/or what I’ve saved elsewhere. This is like mad money. I just draw on it to buy what I want, whenever I want without feeling guilty.

Bare-Bones: $1200/year ($100/month)

Comfortable: $3600/year ($300/month)

Extravagant: $6000/year ($500/month)

I should be OK to make at least Emergency Fund, Retirement Savings and Regular Savings at Extravagant, and Comfortable on the rest.

But the main top 3 funds I want at MAXED OUT capacity is my Emergency Fund, Retirement Savings and Regular Savings, and maybe a Mortgage Fund.

The rest is just for fun 🙂

Now I just need to remove the cash from the company in dividends, pay the taxes and figure out how much NET I have left over.