Excess Capital Savings - Contractor Talk - Professional Construction and Remodeling Forum

**Ed the Roofer** · 02-20-2007, 11:44 AM

Where do you keep or invest your excess reserve funds until the time needed to pay your bills?

Mattress?
Money Market Account?
Spare Bank Savings Account?
Investment Portfolio?
Retirement Account? (If you have access to withdraw funds)
Investment Equity, for Line of Credit Access?
Never Have Any Excess Funds!

Ed

apkole · 02-20-2007, 02:52 PM

Our prepaid contracts for the snowplowing business always were deposited to an investment account through Merril Lynch or some other investment house. We weren't charged a per item deposit or a check processing fee, and earned a modest return on the investment. As I recall, the money was invested in US gov't bonds. Nothing to get excited about, but there was no chance of losing the customer's money.

I believe it took a $50,000 deposit to open the account.

Andy

Charles Bagley · 02-20-2007, 06:48 PM

I use a money market account. Easy to move money into and out of. Paying about 4.75% right now. Not much, but it is safe and easy to use.

Boogga · 02-21-2007, 02:07 AM

Cleverly.

Reinvest it in Real estate. Purchase land for house and land package. This just defers the tax payable from this year to the next.

DamionR · 02-21-2007, 09:52 AM

I like IRA's because it's tax-deferred growth. I think you can max out a Roth IRA at $42K per year.

The rest I spend on hookers and beer.

~

gt4674b · 02-21-2007, 11:51 AM

It all depends on the time frame of when you will need to access those funds again. The sooner you need access, the more liquid the investment should be (IOW, the easier it is to get your money back without additional fees). For paying bills a money market account probably makes sense. Usually they have some kind of minimum, say 5k or 10k, but they pay twice as much or more in interest than a regular savings account. If you are talking longer time frames, you can look at government issued CDs or a similarly safe investment. Only put your money in more volatile investments (stock, real estate, etc) if you have a very long time frame. 401k, Roth, etc are great tools to defer taxes but only use them if you are saving for retirement, the penalties for early withdrawl are stiff.

swagled · 02-22-2007, 09:17 PM

One way to budget ahead to the end of the year, if you don't have an impounds account for taxes, is to buy a few T bills at TreasuryDirect /dot/ Gov and roll them until it's time to use them. It beats the 2% bank savings account rates now, and is even safer than an FDIC insured account.

Grumpy · 02-22-2007, 10:51 PM

In my opinion, if you are not earning more than the interest you are paying on your debt, than your biggest investment should be paying down that debt. For example if you have a mortgage at 5% and a savings account at 3%, you are actually losing 2% on your money by putting that money into a savings account instead of paying down on your mortgage. With a home equity loan you can always liquidate if need be.

It's not that simple though. I am not an advocate of placing all your eggs in one basket. You should diversify your investments and have a varying portfolio. For example I keep a few months expenses in a savings account for emergency purposes. After the account starts to swellI will consider investng elsewhere.

I like the stability of money markets and mutual funds. However I like the overall long term of realestate and if you have been considering buying investment property your time may be now while property values are on the down.

My next investment will be a larger home. I shall be selling my condo when I get my tax return. After that I will once again begin to save for another piece of realestate... I will be looking into commercial property to buy and rent to my corporation. I am tired of payign rent, that's just pissing your money away!

My wife has a 401k at her work and I'm trying to setup some sort of retirement plans for my employees. Either 401k's or IRA's. My wife's employer matches up to a certain dollar ammount. However I had to force my wife to invest the maximum allowed by law. Why? BECAUSE IT IS TAX DEFERRED, and if you want until after retirement can be TAX EXEMPT. That means you are not paying taxes on your income. I LIKE THAT.

dougchips · 02-22-2007, 11:00 PM

Tax refund Grumpy? I'm not familiar with that term..........why would you let them have your money in a zero interest account?

Mike Finley · 02-22-2007, 11:44 PM

Quote:

Originally Posted by Ed the Roofer

Where do you keep or invest your excess reserve funds until the time needed to pay your bills?

Mattress?
Money Market Account?
Spare Bank Savings Account?
Investment Portfolio?
Retirement Account? (If you have access to withdraw funds)
Investment Equity, for Line of Credit Access?
Never Have Any Excess Funds!

Ed

Stays in the checking account as working capital, if it grows over the amount you have set to keep on hand, sweep it out as a owner's withdrawl and do with it what you want. After it is swept out it's either treated as personal net income and you can invest it personally or if you want to start another reserve account then you can do that.

The way you want to keep a certain amount of money really only has to do with how liquid you need to keep it. Working capital needs to be very liquid, a reserve needs to be a little less, but still very liquid, anything after that depends on your personal situation I would think.

Grumpy · 02-23-2007, 04:38 PM

Quote:

Originally Posted by dougchips

Tax refund Grumpy? I'm not familiar with that term..........why would you let them have your money in a zero interest account?

Because I don't want to be audited.

Because I pay taxes and have no choice in the matter. Because my wife pays taxes and has no choice in the matter. Why do we not have choices? We are employees. She is a nurse and an employee of a hospital. I am the general manager of the business I own and take a bi-weekly salary check.

Sure we can maximize our deductions, and I can limit my delclared income... but we still pay taxes. Thus the tax refund.

Why don't I simply 1099 myself? I do that too, for bonuses, dividends etc. There are many reasons why I get a w2. One being that it looks much nicer when securing a loan to have a regular weekly pay stub rather than not only showing my own personal records but also the records of my company's financials which is the alternative. By paying taxes upfront and getting a refund later I am forced to save, and it's money I can count on. If I had it in a savings account I might be tempted to use it, then when tax time comes... if I am not able to make my tax payments, I will be screwed.

Quote:

Originally Posted by Mike Finley

Stays in the checking account as working capital, if it grows over the amount you have set to keep on hand, sweep it out as a owner's withdrawl and do with it what you want. After it is swept out it's either treated as personal net income and you can invest it personally or if you want to start another reserve account then you can do that.

Yes that too. I had assumed that this step had already been done. I was talking about personal funds, not corporate/company funds, in my first post in this thread.

ultimatetouch · 02-23-2007, 07:08 PM

Quote:

Originally Posted by DamionR

I like IRA's because it's tax-deferred growth. I think you can max out a Roth IRA at $42K per year.

The rest I spend on hookers and beer.

~

I thought the IRAs were only for people who make under 110,000 a year. Thats what the fidelity guy told me. He said I had to invest in sep acount or 401K.

Work hard play hard ha damion. Thats what its all about.

ultimatetouch · 02-23-2007, 07:26 PM

We use money markets and they are overflowing because I cant decide where to invest it in a managed fund or realestate. I bought some mutual funds and I dont know how safe they are, but I just let it ride I hate watching the stock market.

I am going to hold some for this realestate dive. I am with you Grumpy this year is going to be the time to buy.

This is a great thread. I think we should talk financial stuff more often.
Its hard to find someone who is nonbiased to give accurate information.

Mike Finley · 02-23-2007, 07:51 PM

Investing is a great subject, it's always interesting to hear how everyone does it.

When I was younger I used to invest in mutual funds, I did the pay myself first everymonth and tried to be extremely agressive. Now that I'm older it's a multi front, real estate, stocks and retirement account.

The stocks make up the smallest percentage and are extremely risky investments, I only do one or two trades a year, and I put all my eggs in one basket.

Real estate is by far the biggest percentage, I invest in my own home first and foremost, then it's some raw land to build on as an investment and rental properties. In 10 more years I want to be retired or close to it.

We shall see.

Diesel65 · 02-23-2007, 08:33 PM

I lost a lot of money years ago in the stock market, so I am scared to death of that.
I did manage to purchase a few vacant lots here in Florida before the real estate boom, also a townouse that I rent out 6 months of the year to vacationers.
I am a commercial contractor so the lot's are my retirement fund, the bulk of my capital goes into a money market account, but I need a good checking account balance in case my draws run late, I do not like to keep my subs waiting for money.

I must admit that I am useless when it comes to making money work for me, I am considering getting a financial advisor to assist me with it.

DamionR · 02-23-2007, 09:56 PM

Talk to your advisor. I honestly don't know all the ins and outs of this stuff. But I know that you can reduce your income through this method. Plsu, I belive that is only for a traditional IRA, Roth IRA's are different.

ultimatetouch · 02-23-2007, 10:55 PM

Quote:

Originally Posted by DamionR

Talk to your advisor. I honestly don't know all the ins and outs of this stuff. But I know that you can reduce your income through this method. Plsu, I belive that is only for a traditional IRA, Roth IRA's are different.

Damion do you mean tax advisor? Financial advisors are pretty costly and weeding out the good from the bad isnt easy.

DamionR · 02-23-2007, 11:51 PM

Mine does both - I would think the tax guy owuld know the facts better.