Allocating My Windfall

In light of the fact that I've already conceded that my emergency fund is inadequate to weather this economic crisis, you would think that I'd be putting all of my recent bonus into my EF, right?

Well, I'm a bit embarrassed to report that that won't be the case. When I initially mapped out what I intended to do with my recent windfall, I realized that I wanted to spend 70% on "earmarks" and only "save" 30%.



Before I go on, I'd like to explain what I mean by "earmarks" and "savings". When I report my "savings" in my net worth every month, I don't include money I've earmarked for future spending. After all, if I plan to spend it, it's not really savings, right?

Secondly, in my opinion, debt reduction is the flip-side of the same coin as savings, since it is a guaranteed increase in my net worth. My credit card balance currently has a 0% APR and I'm "reverse arbitraging" my credit card payments (that are in excess of the monthly minimum) into a "high-yield" (*snort*) savings account. Perhaps incongruously, I consider the arbitraged money as "savings" rather than an "earmark" because it's going to be used to pay down debt.

That being said, I struggled last night to split my "earmarks" and my "savings" to a 50-50 compromise. Although some of the "earmark" categories may seem frivolous, please note that I don't intend to spend it right away (or perhaps, even at all). In practice, when I am short of funds, I tap the "earmark" funds before I tap my "emergency fund".

EARMARKS

Earmark	% of Bonus
Vacation Fund	9.31%
Christmas Fund	8.27%
Computer Fund	8.79%
"Misc." Fund	7.24%
Pet Care Fund	7.24%
Tax 2008 Fund	4.14%
Cash	2.8%
Car Maint. Fund	2.07%
TOTAL	49.86%

• VACATION FUND: I currently have $0.00 saved in this category. I'd really like to go on an über-luxurious trip to Hong Kong-Tokyo for my 40th birthday. And that's not in the too-far distant future (*eek*). This was the one category I had to slash to bring my earmark allocation down. As disappointed I am with that, this will give me a good start.


• CHRISTMAS FUND: This fund is now fully funded. If I get laid off before the end of the year, I intend to shift this money into my EF. After all, people shouldn't expect me to give gifts while I'm unemployed, right?


• COMPUTER FUND: I don't have a home computer right now. :-P I've been doing all my computing on my work laptop. I eventually need to get my own home PC, so this falls into more of a "necessity" for me.


• "MISC." FUND: This is my "mad money" fund that I can spend on my "wants" vs. my needs. The comfort of having "mad money" is critical for my sanity and continued motivation to live a frugal life.


• PET CARE FUND: Truth be told, this is less about "pet-care" and more about "pet-euthanasia and cremation fund". I just don't want to call it that. Although my cat MJ is doing relatively well right now, I don't expect him to live much longer.


• TAX 2008 FUND: I owe, I owe. Last year I estimated that I'd probably need about $350 to pay my federal and state taxes. Uhhhh... I was short... by a mile.


• CASH: I should actually call this my Tax 2009 Fund. As previously reported, my company made the right bet on the housing crisis and the shareholders have been rewarded richly. I participate in my company's ESOP plan and I got a separate bonus there too. But with all good financial news, there's always the tax-man to pay. My company took out the tax on the ESOP bonus from my paycheck. I decided to pay it through my cash-bonus instead.


• CAR MAINT. FUND: Since my car seems to have a knack for attracting foreign objects that either break the windshield or puncture the tire, I think bolstering this fund would be a good idea.

SAVINGS

Category	% of Bonus
CC Arbitrage	15.52%
EF	13.93%
CD Ladder 2008	5.17%
CD Ladder 2009	5.17%
Roth 2008	5.17%
Roth 2009	5.17%
TOTAL	50.13%

• CC Arbitrage: Even with 0% APR and paying $1,053/month, I won't have all of my cc paid off before the promotional interest rate expires in October. I need to put away money in order to pay off my CC before the end of the year.


• EMERGENCY FUND: Yeah, I know I'm only putting away a pathetic 14% of my windfall into my savings. C'est la vie.


• CD Ladders/Roth IRA: These are critical elements of my long term savings strategy. For now, I'm going to keep them in my liquid savings. If I need to tap this fund while I'm unemployed, so be it. But with respect to my Roth, I'll contribute $50/month from this fund so that I can take advantage of this down-market to dollar cost average.

~~~

In the comment section of my prior post, some people asked about a severance package. Other people wondered why, if my company did so well in the housing crash, it's laying off people. I'm not at liberty to specifically discuss these issues right now but there is a logical explanation. With respect to a severance, my company has offered generous severance packages in the past. However, I am not counting on the severance in light of the fact that my company can easily eliminate or grossly reduce it. With respect to why my company is laying off people despite doing so well in the past, well... let's just say my company's philosophy is similar to Warren Buffet's: "The investor of today does not profit from yesterday's growth."