Monday, December 25, 2006

Strategic Planning for Next Year

My wife and I spent some time discussing what the next year will look like. Strategically, it will be very interesting.

Here are some of the major events:

  • Hopefully, I will keep my job with Big Company (having run my own business I often worry if I can fit into a corporate hierarchy)
  • My wife will accept a job in Chicago - initially with a pay cut of about 15%
  • My wife will give notice to her current employer
  • We will buy a house in Chicago ($800k - $1.2M) - much more than our current house ($500k)
  • My wife will have two months off (and we will have 1/2 income for that period)
  • We will move / relocate to Chicago
  • We will redecorate the new house with minor rennovations
  • We will sell the old house (after having lived in it for about a year)

That's alot to have happen. There will be even more administrative work. Everything from changing address for financial accounts, legal businesses, etc... to redomiciling our Living Trust.

Health insurance and related benefits will change dramatically.

Currently my wife has returned to work from maternity leave. We have about six weeks deficit in our operating accounts from her time off (no pay) plus about $18k reduction in cash due to individual 401k contributions and custodial roth IRA's for the kids (plus the cost of maintaining a rental home in Chicago for a month).

By the end of April I will have returned all the money borrowed from our high interest internet savings account. We will also have about $20k in our operating cash reserve (a local money market). If I can keep my job, we should have almost $30k in cash. That will be more than enough to cover our monthly expenses (between my salary and dipping into the operating cash reserver).

However, a number of extraordinary expenses will exceed the operating reserve and need to find their own source of funding:

  1. Downpayment on the new home
  2. Rennovation or improvements to new home
  3. Repairs for new home
  4. Any relocation expenses not covered by Big Company and my wife's new employer (they are tight fisted)
  5. Decorating costs for the new home (venetian blinds, window treatments, carpeting/flooring etc...). Historically, this has cost about $15k each time we've moved.
  6. New furniture for the new house - my wife dreams of new bedroom furniture (I actually can't understand how people in their 30s can afford $25k bedroom furniture with house prices so high - do you know how?) [I have no idea where this money will come from]

In short, we have enough cash to live, but not enough cash - without liquidating investments or other assets- to cover large capital purchases or large cash layouts. So this is a conundrum we must address.

In the worst case, I can take the $70k liquidated from our insurance investments and use some/all of it to make the downpayment on our new home. It wont' effect my networth ($70k from liquid investments moves into a $70k asset account, but it will make the asset illiquid. The when we sell the less expensive house in NC, we can recoup some of the money invested into the new home.

Any thoughts or ideas?




Anonymous said...


I am pretty new to this blog but I am very impressed with your management of finance! I don't have any new ideas to add to your suggestions. I learn a lot from your blog and I want to congrat(belatedly) you on the new job and new baby! How exciting.

makingourway said...

Thanks myroad, it's wonderful to hear such kind comments - more support for the challenging discipline required to navigate the complex and predatory seas of our modern financial system.


Anonymous said...

Hi, just discovered your blog from another and it is interesting read. Not done going through all. Impressed with goals for 2007. I too need to build cash reserves as I had placed most of it in taxable accts containing stocks bonds and mutual fund. Realized how important it is to be liquid. Why the large amount for yourself? Also why did you cash out your insurance policy? Large amount there, you must have overfunded.


makingourway said...

Wayne, thanks for the kind thoughts - I'm glad it's interesting to you.
I wish 2007's goals were more impressive. What we're really seeing is a likely shift of cash and investment assets into personal real estate (not a true asset) - at least until I sell my NC house.
We're also seeing alot of time off and reduced income - but then again it should be a cheery experience non-monetarily.

I would be careful in not considering brokerage (non-retirement) investments as NOT cash reserves. In general these investments can be liquidated within a week. There is the question of volatility. But if you can handle the volatility your non-retirement investments are subject too, you might want to minimize the actual cash you have on hand.

When I move, I may open up an LOC and put most of my cash into brokerage investments.

Recently I've kept the amount high due to volatility in our personal situation:
- changing jobs
- moving
- buying a new house
- high risk executive job (could lose it fast)

When we move I'll probably lower the cash reserve after we're settled. Probably in August of 2007. Most likely to about $90k, which represents about 6 months of expenses. If I set-up a HELOC, I might lower it to $50k.

I liquidated the insurance policies because they were inappropriate investments - more than life insurance.

We created ILITs with two times the insurance cover on 30 year terms for less premiums. We then liquidated the cash values of the policies and will place them in low cost index investments - imagine the fees will go from 2.x% down to 0.2%. Big difference.

The only value I can find for cash value life insurance is as a means to protect assets. And even there it's tricky.