How to plan for big expenses

I just make "car payments" to our HYSA and then use that cash to buy a car when it's time.

I treat my stock investments as liquid. I can pull money out as needed if I have a large expense. Usually don't need to, though

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Why do you keep six figures in your savings account? Are you not losing opportunity cost for not being invested?

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Because I sleep better at night and don’t want to get into selling stuff out of my brokerage and paying 32% taxes on any gains.

I get nervous as shite with anything below 50k and have been that way for years.

Here’s our approach. Some are better. Some worse.

First, never buy auto cannot afford. Live below means. Rule #1.

Second, Compartmentalize! Designate accounts / investments to specific financial goals. For example, we invested in wedding and new auto / vehicles funds, separately and specifically. Taxable funds for each. The only purpose of these funds was per goal.

Third, we invested regularly:

For wedding, started when daughter was born.

For auto, once note was paid off, we invested the same note monthly until purchase of next auto. Eventually, this created the fund balance to pay cash for new autos (an option we may or may not exercise).

Note - We kept new cars to 11-12yrs so typically we were investing 6-7yrs. Built the cash early to pay cash for new vehicles asap (an option we may or may not exercise).

Fourth, how did we determine is we use cash option? We took use loan vs use cash decisions by evaluation of the opportunity / cost for each.

Example, Can the after-tax returns on new auto fund beat the auto loan interest rate over 5 year period?

If yes, borrow. Let auto fund grow faster than cost / interest rates of loan.

If no, use auto fund.

Interest rates were usually low during this lifetime so rarely did we NOT use loans and work this positive spread for compounding cash.

Note - as these are taxable accounts, when we bought new autos, we always used long term capital gain shares (15 or 20%) and never short term / never ordinary income tax rates!

Fifth, Typically invested in Vanguard’s VTSAX for these long term purchases. As year of purchase approached, move to money market or just let it ride, depending on market, auto price, and tax situation of the day.

Now retired. Higher interest rates. Likely will pay cash for new autos in future. Will see. Same logic will be used.

This was our approach. Hope helps!

Good luck!

There's a setting you can change in fidelity that does the math for you I believe. Meaning it will sell the last in first if the tax is less than long term cap gains.

Budgeting is everything. Money shouldn't be allocated when it is spent. It should be allocated when it is earned. All of your idle money should be in a HYSA (or cash equivalent like a bond ETF or mutual fund, at the very least - although you will have transaction costs with those).

You can have a large pool "rainy day" expense, but even then, that should be penciled in to a specific category - "unplanned medical expenses", "unplanned home repairs", etc., IMHO, otherwise it becomes a slush fund.

Since the second/third most expensive budget item for most people is their automobiles (with the other after housing being maintenance on an owned home), that's a no brainer to have a dedicated, "New car fund" and separate from maintenance, also IMHO.

I try to pay cash, or pay off the loan asap. I've had 2 Toyota Camry vehicles that each lasted 17 years. My current fake truck is 9+ years old. I use the term fake truck because it's a Honda Ridgeline. That works for me but if I needed to drive off-road it probably wouldn't work. I have avoided the high dollar purchases because I had to drive a bit to work, and I value being able to get my kids through college, afford to retire, etc. I've kept a good emergency fund that I've used to buy a vehicle when needed. I've seen others get rid of vehicles at 100k miles but 200k + has been the norm recently without significant repair bills. The only exception was a Chrysler Van when the kids were little. I also value the vehicles that have high resale value over time, on consumer reports.

I am a big believer in lines of credit and assessing interest rate scenarios. It depends on cash position, interest rate, and market expectations. Anytime I can borrow at 4% I take as much as possible. My house note is 2.75% and I took cash out to invest in the market in 11/20 and buy other appreciable assets.

So for me there isn’t a set plan but it is a balance of liquidity. With LOCs I can pay them off if the winds shift and move some from non-qualified investments as needed. I also keep less than $500 in any checking/liquid accounts.

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I also keep less than $500 in any checking/liquid accounts.

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I have several utility bills, and other bills on automatic pay from bank account.

If I only kept $500 there, I’d be over drafted at times.

I probably keep too much cash cushion in checking account, but I sure don’t want to pay overdraft fees and the like.

I need to work on this.

I’m leaving some on the table.