Short term liquidity strategy

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kamikazekid
Posts: 48
Joined: Sun Apr 05, 2015 5:15 pm

Short term liquidity strategy

Post by kamikazekid » Mon Mar 20, 2017 11:28 am

Dear Bogleheads,
I am envisioning some major expenses after 3 years. I am going to need plenty of liquidity for a downpayment on a house as well as potentially for new car(s). By new I mean either new or gently used cars.

Here is what I think will happen by 2019/2020

1) 2019 - Wife finishes Phd, gets a job within the pharma sector. Annual income goes up by at least 25k to 160K before taxes. Thats both our incomes combined.

2) 2019 or thereabouts: Sell current home and upgrade to a bigger home. Current home purchased for 260k, valued on redfin at 380k. Mortgage due 180 k. We will look to buy something in the 600k-650k range. Reason for upgrading home is family is likely to expand to 2 kids making our present place inadequate.

3) 2021- Our CRV currently has 115 k miles on it. Will go for another 5 years I hope which will take it to 175-180 k miles. At that point in time, I will have used it for almost 10 years and will probably need a new one

5) Our Civic has 75k miles on it. Hate the way it drives even though I love the maintence bills ( $0). I dont imagine I want to drive it for another 5 /7 years. I just dont like the car and would ideally sell it and get a better set of wheels.

I have about 25k that I can lock up in CD's etc...but I am confused on how I should approach all of this. Should I just keep cash in bank ? Should I get rid of the Civic now allowing me time to rebuild by cash in time for the home purchase or should I just wait for both cars to breakdown for good and then approach the problem when that happens.

Lot of confusion. Any help appreciated.

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flamesabers
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Location: Rochester, MN

Re: Short term liquidity strategy

Post by flamesabers » Mon Mar 20, 2017 11:42 am

If you're going to keep money in the bank I suggest putting it in a high-yield savings or CD account. Alternatively you and your wife could buy up to $20k of I-Bonds this year if you think the variable interest rate will continue to be favorable.

As for getting a new car, how much do you plan on spending for this type of purchase? Even though you don't like driving your Civic, I think it's best to save the money you would have otherwise used on a new car for your new house. There's no telling in 2019 how long it'll take to sell your current home or how much you'll receive net of the expenses to sell the house.

kamikazekid
Posts: 48
Joined: Sun Apr 05, 2015 5:15 pm

Re: Short term liquidity strategy

Post by kamikazekid » Mon Mar 20, 2017 12:10 pm

I am 100% confident we will need a replacement for Cr-V. Its getting pretty beat up due to the daily drive. I would assume we replace it with a CPO Acura or a CPO Lexus. Approx 25 k . The Civic replacement is definitely a want not a need. If I swap it out I will replace it with a better car - havent thought this through I guess but I am partial to German cars having owned 2 of them previously.

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flamesabers
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Location: Rochester, MN

Re: Short term liquidity strategy

Post by flamesabers » Mon Mar 20, 2017 1:14 pm

kamikazekid wrote:I am 100% confident we will need a replacement for Cr-V. Its getting pretty beat up due to the daily drive. I would assume we replace it with a CPO Acura or a CPO Lexus. Approx 25 k . The Civic replacement is definitely a want not a need. If I swap it out I will replace it with a better car - havent thought this through I guess but I am partial to German cars having owned 2 of them previously.


If you replaced the Cr-V with a $25k vehicle now, how much of a setback would this be for your goal of saving for a new home?

delamer
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Joined: Tue Feb 08, 2011 6:13 pm

Re: Short term liquidity strategy

Post by delamer » Mon Mar 20, 2017 1:24 pm

How old are you and your wife? Do you plan to take a 30-year or 15-year loan on the next house?

Given your current equity, you can put 1/3 down on the new house (assuming all things stay the same). Depending on your ages, that is probably adequate.

aristotelian
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Joined: Wed Jan 11, 2017 8:05 pm

Re: Short term liquidity strategy

Post by aristotelian » Mon Mar 20, 2017 1:34 pm

kamikazekid wrote:I am 100% confident we will need a replacement for Cr-V. Its getting pretty beat up due to the daily drive. I would assume we replace it with a CPO Acura or a CPO Lexus. Approx 25 k . The Civic replacement is definitely a want not a need. If I swap it out I will replace it with a better car - havent thought this through I guess but I am partial to German cars having owned 2 of them previously.


If that is the case, that should be your last priority. Wait until your finances settle, see if you make as much on your house as you think you are, and then consider an upgrade.

$600K seems like a lot of house for $160K income. Based on the "3X income" rule of thumb, that is too much by over $100K.

CD rates are pretty bad now. Do you really want to tie up your money for two years at a time to get 1.60% interest? I would go with the high yield savings account or perhaps a short term bond fund. There would be some risk to the latter, but that would just mean waiting a month or two to replace the Civic.

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