Running on Thin Ice

Running on thin ice – you know exactly what this post is about everyone?  I know, very ambiguous and disguise-like, but it’s how I’ve been running over the last 5-6 months.  This year has had many events, opportunities and actions that has had me running on thin ice, but for some reason – it’s becoming less and less “scary”.  What do I even mean about running on thin ice, one may be asking?  One slight cue – it deals with cash. And not simply just cash but…I mean running low on cash during each and everything month in my savings investment account.  This is the account I use to make extra payments towards my mortgage and investment purchases.  For the record, I do have another savings account, where I have approximately $1,500 in, and a credit credit, but I make sure I pay off the balance in full each month.  During 2014, it felt like I always had ample cash, say $5,000 to $10,000 sitting in my savings for investment purposes, at all times.  It felt like I could pounce on any opportunity that came by.  Well, 2015 is definitely a different story, but why?  How does it feel?  Am I concerned?  Is this dangerous?  I mean, wow, currently I am sitting at $161.92 in my savings account for investment purposes, given that I just made a $1,500 investment back into JNJ last week.  Here is a snap shot:

Screen Shot 2015-06-21 at 9.46.36 AM

Only $161.92.  That’s it.  Thin ice?  I’d say for sure.  I think most of us would be shaking with their legs a bit here.  I was initially worried and concerned, as my balance has hit these lows before this year.  Today, I’m going to discuss (1) why it is at this level (2) how it feels at this level (3) Concerns at this level and (4) what I have learned with running on thin ice. It’s amazing, to say the least and more frustrating actually, than anything.

Why Am I Running on Thin Ice?

It’s actually quite interesting.  Few reasons, easy reasons, come to mind.  Through the date of this writing – I have made a capital contribution to investments in the amount of $12,077 – and I’m not even through 6 months fully yet!  That is over an average of $2K per month – not even including dividend reinvestment nor 401k contributions.  It all began in January when I purchased Rockwell Automation, Tupperware and DOW Chemical early on.  Then other opportunities came to my door, such as additional Caterpillar investments (purchased those bad boys twice!), Johnson & Johnson (Twice!) and even a decent chunk back into DOW Chemical and HCP, the REIT.  As soon as cash was deposited into this account from my salary, it was almost being transferred into my brokerage account just as quick to be used on purchasing a dividend paying, cash flowing asset. However, that does not stop there, at all.

I created an article asking the community if one should invest or pay down the mortgage some time ago.  And wow… that has been a fun debate, not just with this wonderful community but amongst Bert, friends and family.  It’s a debate in the investing community and personal advising arena, all of the time, as well.  Given thad I had established steep goals for the year of 2015 – paying down an extra $500 per quarter was one of those goals.  As of this writing, I have fulfilled half of that goal and actually have another $500 set to go out at the end of June – as I like to do my quarterly paydown at the beginning of the quarter, rather than the end.  That is another $1,000 and as soon as more savings comes in this week – another $500 will go down to it, to round that to $1,500.  However, keeping the math simple – the $1,000 so far plus the additional $12,077 in investment purchases comes to a total capital outlay of $13,077 this year… holy smokes.  This obviously doesn’t even consider my normal fixed monthly payments for my mortgage, P&I, auto, etc..  Yet another reason why I have been running on thin ice. Wait, we aren’t finished… yet.

Wedding season.  Wow is it wedding season.  I currently have or have had 8 save the dates on my refrigerator.  Not just that, but I am also in 3 of the weddings.  As of this writing – I have been to 3 and in 1 of those and have 5 more to go. I have had to buy 2 full suits, rent a tuxedo, dry clean my other suits/dress shirts and also drive quite a bit.  This doesn’t even consider bachelor parties, gifts and time.  Would I trade these occasions for anything in the world?  Hell no, but damn… does the price tab add up.  I would say just thinking of those items, which I can easily drill down to how much it truly has cost me – is somewhere in the ballpark already of $1,350.  Damn, that’s an investment purchase right there! I have 2 weddings that I am in on July 3rd and July 4th, yes back to back and guess what the kicker is – they are in different states… talk about madness, but I’m looking forward to it all. I guarantee at the end of July, I’ll be down approximately $1,700.  Then I’ll be on cruise for almost two months, until the last 3 come towards the fall time. Phew.  When you add this amount to the earlier section above – that is over $14,350 in capital outlay, with the $1,350 extra being a rough swag number.  No wonder I am running on thin ice.  Good thing my skates haven’t gone out on me.

How does it feel?

Honestly, it actually makes me focused more.  It’s very weird. I thought my budgeting tactics and financial sense of where I am during the month was sharp before – it that much more on point.  As you can see from my monthly updates (though May hasn’t been posted yet, but I can tell you for a sneak preview – I was either just at or above 60% savings…), that it hasn’t impacted the goal to save 60% every month, I am just that much more aware of what’s on the horizon and have made more selective choices on what I have spent my money on.  I haven’t gone shopping for clothes, at all, this year for myself outside of wedding attire, I haven’t gone on any trips yet and haven’t purchased a laptop that I was considering for the blogging endeavors just yet.  I feel focused.

It’s also exhilarating, in a way.  Yes, I do have some cash left to the side in another account (~$1.5K), but I think running on thin ice has allowed me to worry less.  I have ran this thin for almost half a year and guess what – NOTHING has happened.  Not saying that that could change, but it makes me feel that I have more control than I thought – with events, with purchasing, forceful savings, etc..  It makes me feel that I am in control of money, essentially – and Tawcan recently wrote an article about respecting your money.

How else do I feel about running on thin ice?  It makes me be strategic also – is there anything extra I can do to bring in more income/cash? I had been more selective in credit cards I’m using for purchasing on what gives the most cash back, I have sold gift cards I never used before, I sold my old smart phone that I didn’t use for almost a year – it’s making it more of a challenge to bring in more cash.  Currently, I have around $75 in my main credit card for rewards that I’ll simply cash out today and place in my account as more savings – which this instance has also showed that I’m cashing out more often, because there is no further benefit of letting the reward “ride up”.

Concerns at This Level

Do I have any concerns of running at this level?  Of course I do.  What are those concerns though from running on thin ice every month?  It honestly comes down to missed opportunities in the market place!  A lot of stocks are still on sale, and if I had $5-$10K laying in the account, I would be firing, just like Mantra has been over the last 30-60 days, he has been on a tear! I do have other concerns though – such as maybe pushing back other expenses that I should be doing, just so I can keep saving to keep my investments going.  Expenses such as – making more trips to see people, as gas is still around $3/gallon and for me to drive a few hundred miles over the course of a few days is expense, not including food and entertainment. However – I haven’t even come across any “experiences” that I have turned down or that I simply didn’t look into simply because I wanted a high savings rate still.  That hasn’t been the case at all.

My other concerns, as I’ve done a better job with it, as earlier it wasn’t the case – was the size of the investment I was making. I changed my approach and internally decided I like making purchasing of $1K at a minimum or more, and actually has become trending towards the $1,500 mark.  Why do I like doing this?  It reduces my expense/fee exposure on a trade and also – it makes the dividend reinvestment and when dividend growth/increases come – that much more impactful.  So running on thin ice has me concerned that it’s that much harder to make those sizable purchases.  That’s OK though, as I’ve done a decent job at consistently doing that, just not as often now. Overall, my concern levels aren’t high, actually – even if I’m running on thin ice, I know where I can “tweak” things and then be flexible with the life I have and following the 5 money lessons we have learned.

What have I learned from Running on Thin Ice?

I have learned quite a bit about myself from this state of account being, as we’ll call it.  I have learned that I do not need a large cash emergency savings account.  I have learned my tolerance levels – which is at least having $1 in this account is my level I like it at.  I have learned how to stretch myself and be flexible when the time comes and be more strategic, as I said before, with savings and spending, ways to bring more cash through the door, etc..

Most importantly – I have learned that you don’t miss out on life if you don’t have much in your cash/savings account.  You can still be able to do everything you want, even if you are sitting that low every month.  I have learned that there are many things you can do on a daily basis that does not cost $300 to go out and do. You don’t have to go to a bar and buy 5 rounds for everyone and the only thing you walk in the door with is a hole in your pocket. I have learned that you don’t have to go on a $2,500 trip and spend, just to spend.  I have learned that wow – you can still keep up with your goals, though in a more rigid way, even if you don’t have thousands of dollars sitting in your account.  Now, I’m still so damn fortunate to be able to save and invest thousands of dollars every month, but my most liquid asset of cash – is at a minimum, that’s the more focal point I believe to this article.

Actually scratch that most importantly above.  The MOST important piece I have learned is – wait, I am investing into huge companies.  I own a piece of them. If any big emergency comes and I need cash, there are SO many options that I have.  I can turn off dividend reinvestment and start collecting the cash instead.  I could actually sell this on the market place, as this has become easier and more liquid than ever to do so. I love when individuals feel like if you invested into a stock that there is no way you could ever get your cash back.  Couldn’t be more far from the truth. I’d argue that investing in a highly valuable, fundamentally sound company is worth more than a fiat currency – being the US dollar.  It’s amazing and riveting knowing I have many options in case a big emergency comes – I now have built this cash flowing, dividend paying portfolio that could aid in these situations – almost like an employee/employees working for me, and do I feel stronger than I ever have been.  This reason is something I have taken away from running on thin ice, for sure.

Conclusion

Okay, the big conclusion.  To summarize, I have learned much about myself from having very little in my cash savings investment account.  It has been exhilarating, life discovery on tolerance levels and has pushed me to think differently on things.  I feel safe, I feel ready, I feel “fine” actually.  My biggest question now is – how do YOU feel about running on thin ice?  How would YOU feel if you only had $161 in that savings account?  Have YOU been in this position before?  What have you learned?  Please, do share with us and everyone, I love any debate, insight, feedback and guidance! Thanks everyone and talk soon.

-Lanny

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27 thoughts on “Running on Thin Ice

  1. Back before I was into investing, when I had first started respecting my money and learned about budgeting, I ran on “thin ice” a lot. I would pay down my debt and build up my emergency fund or savings to pay for school. I just laid low most times; going hiking, hanging out with friends who did not encourage me to spend all my cash, and played sports. I’d say you’re doing good because you are both investing and living life. It would be a sad day indeed if you kept yourself back from experiencing what you want to experience with family and friends. Our money is a tool and I believe you are making the most of it. Good job!

    – HMB

    • HMB,

      Great comment and I appreciate you coming by! I agree – I wouldn’t want it to impact my quality of life at all. I appreciate the kind words, but I always feel like I could be doing better somehow. I think I forget how lucky and fortunate I am that I can be running on thin ice without falling through a crack, it helps that northeast ohio isn’t the most expensive area as well. I appreciate it all HMB!

      -Lanny

  2. Lanny, I have been investing with the same strategy & philosophy as you describe and have been keeping a similar ‘thin ice’ cash balance in my savings/checking account; have done this for past 2 years. This year, a member of my immediate family got into a predicament where they needed some financial help, through no fault of their own, and I ended up selling some stock that I didn’t want to sell in order to give them a hand. That was an instance where having some emergency cash on-hand in a regular savings account would have been nice. I have always heard wise investors say that we should have an emergency fund of 6-to-9mos living expenses available and this was a lesson for me. My emergency fund has always been to pay my repair bills or new purchase needs with my credit card (paid off monthly) and I use the cash points from those purchases to help pay down my student loans. In this particular instance, my expense was not something I could put on a credit card; I needed cash. I guess I could have used the cash advance option of my credit card, but the interest rates discouraged me from that. My only option was to sell some stock. Fortunately, I sold at a gain, but that money would be doing me much more good if I could have left it invested. It would have cost me a lot less to have some cash available. I am not going to change my strategy much with the exception, that I am now going to work at setting aside 25 or 30K in a savings account (even though it will be at a lower return) and then go back to investing like a mad man. The added benefit of having the cash set aside is that you are covered for emergency and if you get a good stock buying opportunity that is too good to ignore, you can grab $3-to-5K from the ‘smack’ you have piled up and get back that money sacrificed from your money being in a low-interest savings acct.

    • Gary,

      Great points and great perspective, cannot say that more than enough. I am sorry that you had to sell your stock to help cover unexpected expenses. That is very VERY nice of you to sell stock in order to give cash and lend a hand – very courageous and kind of you, one that most find hard, extremely hard to do.

      I definitely agree if it comes to that – having cash on hand is nice, rather than dipping into your portfolio that you’ve worked hard to build. Have you thought about just going hammer on your liabilities, such as those student loans and get ride/wipe your hands clean rather than sitting on such a large amount of cash? That way – you’ll be really opening up your free cash flow. I’m not talking about all 25k at once, but maybe an extra 1k per month to start dwindling those down?

      I know it is nice to have plenty of ammo when the stock market turns south to pick up great bargains – I used to be in that same position. I can see the pros and cons to stacking up large amounts of cash and then start deploying the capital. I guess for me, I like to try to hit all at once, little bit of cash, paydown on debt + as much as I can invest. I think everyone has different strategies, no?

      Thanks again Gary, great stuff.

      -Lanny

  3. Hey Lanny. Thanks for sharing bud. I’m proud of you my friend for being a crazy hustler to the point where you are ” running on thin ice”. That’s what motivation and ambition do to you. Always thinking about your stocks and wanting to build on building the fortress bigger and bigger and better and better. Good job Lanny. I’m the same way but I’ve learned to have some money set aside for emergencies because things happen and shit happens. Other than that, keep it up Lanny. You got this momentum going and you’re off to a great start. Cheers my friend.

    • Hustler,

      Thank you for coming by, really appreciate it. I agree – shit does happen and the goal is to be ready for that when it comes. I think I may change the strategy a little bit, I know I’ll be okay if something happens, but at the same time – as Mantra posted below – I keep buying on these dips and when I can! Talk about the grind… you know what i mean with that.

      -Lanny

  4. Lanny,

    I hear ya, bud. How much cash one should keep on hand is a highly subjective call. It’s just really unique and specific to each individual.

    I like to generally keep around $5k or so in cash. Add in the $15k or so in available credit, the ~$600 monthly dividend income, and the ~$200k stock portfolio, and I see no reason to keep a bunch of cash around. I’m also not a homeowner, though. If I were, I’d probably want a little more on hand.

    But you don’t have a lot of cash on hand to buy stocks because you’ve been… drumroll please… buying stocks. So don’t beat yourself up too much. I sometimes hear this from investors, where they lament not having cash on hand to buy on dips. But they’re only in that situation because they’ve previously bought on dips. Unfortunately, our cash has limits. When it’s spent, you have to replenish it. This is, of course, why I prefer cash flow to cash. Cash flow regenerates, whereas cash doesn’t. 🙂

    Cheers!

    • Mantra,

      Thank you for coming by. It is unique to each individual, based on tolerance levels, comfort level, etc..

      $5K is a nice amount. I think with my “fluff” of $1.5K I feel okay, and am never this low for this long of a period and am learning I’m okay with it. It’s weird. I also do have lines of credit available to go up to probably over $30K+ if need be. With my accounts combined as well, looking at roughly $475/485 in income per month with the portfolio – I would agree, think we have some assets covering our assets… haha

      You hit it on the money – cash flow regenerates and cash just sits and I’ve been busy buying assets that have regenerational cash flow (new word? haha). But I see you making moves over there as well, continuously buying on dips when you can. That can’t be any more true. Thanks again Mantra.

      -Lanny

  5. I know exactly what you are saying here, I find myself in a similar situation almost every month. It is hard to create a balance in you life with a mortgage while also trying to continue to invest.

    Cheers,

    Pat

    • Pat,

      Thanks for the comment. It is hard to balance, but we continue to hit all facets, as it looks like you are doing that as well and afterwards – not ending up with much cash. It’s okay, as long as what you are doing with life in terms of events are still being accomplished to an extent. All about the balance… so hard.

      -Lanny

  6. Lanny,
    Wedding season is fun, but financially it is terrible. Thankfully wedding season this year is only 4, but I had 6 last year including my own. I did not go to one, and sometimes that is the right move for a variety of reasons. Still even when I see my accounts running a bit low I am not super concerned, because I know that I still save every month and will recover and continue to push my investment account. I’ve never gotten that low, but I have had my checking account almost a the bottom – still I keep a small buffer account ready just in case. Even when my checking account is low, you eventually get it back to freezing.
    – Gremlin
    – Side note, the wedding I am in this year is requiring me to rent a kilt + accompanying suit. I don’t know how I feel about that.

    • Gremlin,

      Thank you so much for coming by. Financially = horrible haha. still – 4 and then having 6 plus your own sounds like a life-full right there in itself. That’s what’s great – like you said – we have built these habits that no matter what, if our income position is the same/improving, we know that we are saving each time that it’s possible. Always great hearing from you Gremlin.

      Also on your side note – definitely create a post with pictures, should be hilarious, best of luck with that one… haha

      -Lanny

  7. Hey Lanny,
    Completely agree with the wedding season eating into capital. Have gone to three weddings this year so far and have two more on the way. Driving to different states + getting a hotel for the night is typical among my group of friends so it really just adds to the cost here. I wouldn’t really worry about only having $160 odd dollars to play, as long as debts are paid (or being paid) money is meant to be spent (wisely). I like Div Mantra’s take – cashflow vs cash is the real battle.
    -Rich

    • Rich,

      Thanks for coming by. Easily eats into capital. Hotels, gas, meals, clothes, gifts, potentially extra curricular activities = costly. You’re right – as long as everything is covered and I’m doing what I am doing to hit goals, then we are GOOD. Nice to know I have liquid assets at the absolute utmost emergency. Thanks again Rich.

      -Lanny

  8. That’s quite a piece Lanny!! Interesting one on top of that. In summary, welcome to my life! haha! I don’t have much in my savings account. Actually, I don’t have capital to make new purchases… this entire year! So, I wouldn’t worry much with all that you got done lately on the investment side. Our goals are surely different, but I still think you’re doing more than fine with the thin ice.

    I have never attended that many weddings in my entire life! Not so popular around here anymore. But always fun. Enjoy these moments to spend time with family or friends. Expenses suck, but experiences rock! 😉

    Cheers,

    Mike

    • DivGuy,

      Thank you for the kind words, always keeping everyone on their toes hopefully. That’s hilarious that you go through the same thing as well. It’s weird, I should probably feel like, “OK, I have a portfolio valued over $150,000 that current yields over $5,750 in dividend Income. I shouldn’t be THAT concerned”, for some reason maybe it’s just the continuous adjustment to low cash levels and like Rich said in the comment before – as long as everything else is being taken care of then – hey who cares.

      As with the Weddings – I had around 3 or 4 weddings over the last 2 years and then I just got slammed with the 8ish weddings. A good/bad thing, right? Experiences do rock, ’nuff’ said.

      -Lanny

  9. Wedding season is always a killer on a bad year. I easily will shell out a few thousand on flights, hotels, etc… for weddings and bachelor parties.

    • Adam,

      Thanks for the post and stop by. It is a killer and whoa… thousands. Yikes. I may have to tally it all up officially when it is all said and done and share with everyone… $’s are adding up.

      -Lanny

  10. Wow! That is definitely running on thin ice! I like to keep a little more cash on hand, that is for sure. One of my ‘long-term’ goals is to let this habit die, but with our expenses still pretty high it is nerve-racking to say the least. Good to hear you guys are aggressive in your investments! After all, money sitting in the account doesn’t do any work… just need to keep telling myself that! Great post.

    -Mr. Retire by 35

    • RB35,

      Thank you for coming by. Once your expenses die down a bit, hopefully you’ll find more use of any idle cash. I actually just talked to my little brother and found that he has quite a bit and his reason made me cringe a bit – he said he has “no idea why he has this much”. You can be doing so much with that! Such as investing, paying down debt, buying other assets, etc..

      Thanks again and lets keep putting it to work!

      -Lanny

  11. Personally that wouldn’t cut it for me. I like to have 3-4 months expenses in cash, mainly because my rent in Manhattan isn’t the cheapest thing. But once my lease was up, I could move back with the rents if the sh!t ever really hit the fan. Some times I’ll go below 3-4 months if I know I have a decent cash inflow coming in soon to replenish.

    • FF,

      Yah.. Manhattan I am sure is a few multiples higher in the cost of living area than Cleveland, hands down. It’s weird, maybe it’s because I’m in some rhythm with time? Or maybe I’m not doing too many risky things outside of the house? Makes me think sometimes that dang, if I can sit with this cash, small cash balance, am I not somehow getting into experiences as much as I should? I have a lot of evaluating to do post July 4th that I am really looking forward to. Your comment definitely helps with this – so thank you FF, I really appreciate it.

      -Lanny

  12. Hey Lanny,

    I think I have something on the order of $5.16 in my savings account right now. I used to use it as a storage place for extra cash but with interest rates so low it just makes more sense to leave it in checking.

    Most of the time, though I try to keep the checking account balance as low as possible. I actually have a spreadsheet entitled “funds available to invest.” In that spreadsheet I list the credit cards that need to be paid in full as well as any recurring fees like utilities, rent, Internet, etc. Everything other than about $150 then is transferred into the brokerage and used to buy stocks.

    It probably isn’t the best, but I don’t have an emergency fund to be speak of. I have plenty of credit available if needed to get by in the short term and anything longer and I would have to sell some of my investments. I have disability insurance to cover a catastrophe. I just feel the money is best invested rather than sitting as cash.

    Have fun at all those weddings!

    Scott

    • Scott,

      That is… AWESOME!! Living on the edge, making it happen it looks like. That’s good you have a method to invest into stocks. Every pay I have a certain amount that goes right to this savings to purchase stock, so that’s twice per month. Around the mid point of the month, I evaluate my stance with my income, savings and current expense and then make a decision to add more savings based on where my money left is from the month.

      Scott – agreed, better invested then sitting there waving at us, right? haha. Keep making moves!

      -Lanny

  13. I run on a really low cash balance as well, I think because if I had to I would just sell investments to make ends meet. If I know I need to buy something in the next little while I’ll keep cash in a savings account or on hand but with interest so low I don’t see a point. I want my money to work for me!

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