Ok as promised here is a glimpse at my personal financial infrastructure inspired by Ben Casnocha’s post awhile back. I am still working on it, and it’s difficult to truly stick to due to my current work situation which involves spurts of income instead of a consistent monthly flow, but it is at least a framework for how I manage my money.
Short Term Cash needs-
1. Combo of a HSBC and Chase Checking account- I just opened an HSBC checking account for reasons listed below, but for the time being I’m keeping my Chase Checking account open because it has atm’s just about anywhere I go, but most of my checking account activities will be conducted through HSBC going forward. I keep less than $1000 in my checking account at anytime (except when paying rent).
Medium Cash Needs –
I love my HSBC savings account (which is paying 6% on new money until April 30th(?), especially linked with my HSBC checking account. This is a no brainer, and if you don’t have one you need to get one. I really have been happy with their services, but just do a google search for “online savings,” to see the hundreds of others that offer a similar service.
How to use it: Your online savings account should really be the place where you keep the majority of your short term money, or money you’ll need access to say in the next year. Because you’ll earn interest on any money in the account, you’ll want to make sure your paychecks or direct deposits get in there asap. My goal is to keep my checking account as empty as possible because I don’t earn anything in there. I actually just added an HSBC checking account so I can withdraw money at HSBC ATMs (which are everywhere here in NYC) directly from my savings. I also can make instant transfers between my HSBC savings and checking ensuring that the only time money comes out of savings is when I need to pay bills or write checks. More time in savings = more FREE money made on interest. Even if you don’t have an HSBC checking account, you can still can transfer money between your own checking account and a savings account in under 4 days for free (usually, but make sure your bank doesn’t charge).
My goal is to keep 4-6 months worth of expenses in my HSBC savings account where I have easy access to it in case of an emergency. Once I have more than 4-6 month’s of savings (more like 4 months lately) then I move money into my personal investment account (below).
Long Term (1-10 years)
Any money that I don’t need access to for at least one year but under 10 I’ll keep in my scottrade account. In this account, my investments will be limited to stocks based on the Hidden Gems picks and a few of my own personal picks. I limit my holdings so that no stock at one time makes up more than 10% of the portfolio. I do keep about $1k in cash on hand at any one time to do short term options trades.
Long term retirement
I have some inheritance money from my mother in a managed investment account and I don’t plan on touching it for any reason except for a real estate investment and/or seed capital. I also will be open to investment opportunities in the next 5 years. The goal for that money is to let it grow and leave that money with my kids for them to have for college and adulthood. I’ll also continue to contribute to my own IRA.
I consistently contribute the max allowed for HSA’s while young and healthy with minimal health care costs. This way I can build up a nice tax free savings to spend on health care in the future when they will be more expensive. This has been extremely dififcult to setup thus far in NYC, but I am very close to getting this all setup. I’m in the process of setting up an HSA with my broker so that I can minimize fees and maximize the returns on my healthcare savings.
I’m a big fan of credit cards. I know they are extremely dangerous if you are not watching them carefully, but you can really take advantage of them. I have 2 personal credit cards and 1 business. I only use 1 of my personal credit cards consistently, a Chase Rewards card that I have 0% interest on until April of 08. I earn rewards for the this card AND I earn interest on money I spend.
I only spend within my monthly budget ( I try), so I always have the money on hand to pay off my credit card in full but because I have 0% interest on it for so long I don’t. Instead I put the difference between what I paid and what I owe into my HSBC savings account where I earn between 5-6% interest. As long as I keep a close watch on what I owe, and make sure I continually maintain that amount in my HSBC savings account I’ll have no problem paying off the card in a year, all while making money on THEIR money. Again, credit cards can be dangerous if you slip up on payments , but if you are careful you can use them to your advantage. The float can work for you even on a monthly basis. Just make sure you never carry a balance that is charged interest.
I budget my spending for 4-6 months at a time using quicken for PC and adjust my holdings accordingly. I spend as much as my monthly spending on credit card as possible (as mentioned), but also always withdraw cash from ATM in $100 increments within my budget. Once a month I’ll spend a Sunday evaluating my spending, my contributions to hsa, medium term cash, long term investments, and staying within my budgets.
So there it is for now. It’s not perfect by any means, but it works for me right now. The real key is to at least spend some time thinking about your money and different ways you could manage it, otherwise you’ll just spend it until it’s gone. I’d recommend a personal money management software such as Quicken or Microsoft Money (even though they both are crappy in my opinion) which can automatically download your financial statements and categorize your spending.
Take a closer look at your own finances, you’d be amazed at where your money is going.
2 comments on “Financial Infrastructure”
Credit cards will try to get you to pay late fees if you miss a payment by even one day, even if it’s due to the slowness of mail, which can sometimes be slow in NY. The trick I use to avoid this is to set up an automatic recurring bill payment from my bank account to the credit card of $20 (or whatever amount is just a bit more than your typical minimum payment, for someone who carries a balance). This way even if your check or online bill payment to the credit card arrives a day late you have automatically paid the minimum already and won’t get hit with a late fee of $29 or more.
I like Vanguard Money Market accounts instead of savings accounts because you can write checks (min. $250) out of them, do automatic transfers into them from your checking account, and they don’t have the 6 maximum transactions a month that savings accounts do. Another good thing is there is a NY tax free version which means you don’t pay taxes on your interest (even though the interest is somewhat lower to compensate).