Our Current Focus For Cash Flow
I had meant to post this a couple months ago, but figure it still has some relevance.
I have been wrestling with where to put our monthly cash flow. Its smaller now than it was when we had 2 incomes, but we still have a regular amount each month to "put" somewhere.
Obviously our emergency fund (basically the $30k that sits in our interest bearing checking account) is a currently an area that we are trying to grow. However, I keep thinking about inflation. I believe the government has embraced a lot of tools to help the economy recover including mechanisms that will ultimately encourage inflation.
If higher inflation is on the horizon, how do I prepare?
Resist the urge to stuff all our monthly savings into our emergency fund. We agree that we need to regrow our emergency fund, but diversifying our monthly cash flow across savings and investing is still important.
The economy crisis has presented mountains of investments opportunities and now is the time to be thinking of embracing reasonable investment risk. There are a number of stock investments that look (to me) to provide a great long term return on our investment compared to sticking the money in a savings account or debt repayment.
I also have to continually remind myself that accelerating debt repayment is not necessarily the best move either. Given our debt load and our reduction to 1 full-time income this is an area that makes me a bit nervous. I would probably sleep a lot easier once one of the 4 mortgages we currently pay are retired. We currently have enough cash flow to cover our monthly living expenses, allocate ~$500 to a major purchases and still save money - fine for the short term. However long term we need to retire some debt in order to increase the options and flexibility we have going forward. If we focused all our monthly free cash flow on one of our mortgages we could potentially retire the mortgage in the next 3-5years. However with higher inflation, it may make more sense for us to keep the debt in place and use that cash flow elsewhere.
In the near term we have been focusing on continuing our monthly contributions to stock investments. Our thinking is once we no longer see such compelling investment opportunities we will shift focus to debt repayment.
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