Tactical and Strategic Investing: Part IV of IV

In the final part of the Tactical and Strategic Investing series, I’ll describe some of the specific situations that you should consider investing and saving for.

Dave Ramsey – host of “The Dave Ramsey Show”, debt counselor, and creator of the free budgeting tool called “everydollar” (visit http://www.everydollar.com and http://www.daveramsey.com for more info) recommends that you start by setting aside $1000 for an emergency fund. There are a few situations where you’ll need more than $1000 in a moment’s notice, but this is just the start. He also discusses how you should become debt free, and then increase your emergency fund to 3-6 months of your expenses. After you have fully funded your emergency fund, he states that you should start investing 15% of your budget towards retirement. Beyond that, he recommends that you put money into a college fund for your kids and that you pay off your home as soon as possible. What he doesn’t cover are some specific situations that you should at least consider setting some money aside for.

In my opinion (remember, I’m not a professional investment advisor), you can save for these situations at any point when you have spare cash, but ideally, you should at least be out of debt.

In many cases, having a good emergency fund and some money in savings should cover most situations, but the question is, outside of the emergency fund, how much money should I have in savings? What about other options? What if I want to buy a new truck? What if I have an unexpected pregnancy, or a death in the family, or any of a number of other catastrophes or situations?

The answer is actually pretty simple: if you know you’re going to want to buy a truck in a year, start putting as much money as you can into a separate savings account just for that truck. Once you have enough money in that account - including any money you’re going to use from your primary savings account - to pay for the truck in full, then you can purchase it.

For specific types of emergencies, such as the death of a family member in a distant location, consider putting money into a “Travel Savings Account” – enough to buy a round-trip ticket for each person who might need to travel, and some money for hotel(s), food, and a rental car. While you might have relatives at the location you could stay with, having the ability to pay for a hotel at a moment’s notice gives you some flexibility.

Finally, consider having a “vehicle and home emergency” fund as another separate savings account. Build it up to about $2000-$3000 or so, and when you use it for a vehicle or home emergency, make sure you get it back to its original balance. This gives you some flexibility if things really go crazy.

One other thing you might want to seriously put some of your money into is a spouse fund – one that you can’t take money out of, but your spouse can. This fund covers two things: 1) if you die unexpectedly, it can be an immediate source of cash above and beyond your emergency fund, and 2) if you and your spouse get divorced (even if it is contentious, it’ll be a lot less so if your spouse knows you cared enough for her/him at one time in your marriage to set this up), it’s something they can use to at least find a place to live. While I’m not saying that you should plan on divorce, anything can happen in a marriage with someone, and one of the biggest reasons a divorce becomes contentious is when one spouse isn’t sure how they’re going to survive. Having a spouse fund that he/she can control will go a long way towards easing those fears. I personally put 5% of my income into my spouse’s fund and if we never get divorced, then that money is there for both of us and if she, God forbid, died before me, then that money would go to either me or our children.

I should note, there are a lot of other “savings” accounts you could create in addition to the ones I listed above. These include: vacation, kids’ emergencies, parties, home improvement, pet emergencies, hobbies, dining out, dates/movies…the list is pretty much as endless as your imagination. The key is setting an appropriate amount of money aside for the fund that you will be able to access quickly.

This concludes my four part series, and it really barely scratches the surface of what you could do once you start investing, or the different things you could invest for. If you don’t take anything else away from this series, I hope you at least have learned how think tactically when it comes to putting money away for that retirement date that, for those of us who are younger, feels like it’s over 1000 years away.