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Wednesday, May 25, 2011

A Comment on Savings and the Challenge Project ...

I'm a 'saver'.

It's something about the way that I'm built.

So it should be noted that I have many savings accounts, spread around quite a few banking institutions. I have accounts built for specific needs. An account that is reserved for traveling expenses, such as trips to Europe and Asia. There is another account dedicated towards the move that my wife and I will make to Mexico. And yes ... an account that is built upon the idea of spending money. I call it my 10/1 account; in that for every $10 I have in savings, I am allowed to spend $1.00 on something I want. When I have $100.00, then I can spend $10.00 on any sort of 'toy' that I've had my eye on.

I also have an account built for the purpose of expanding my 'burn rate'.

What's a 'burn rate'?

Well, for an individual, it simply means how much money you burn through in a month. What is your typical expenditures in a month? That's your personal, individual burn rate. And it's typically considered a wise idea to have a few years of a burn rate saved. So for the sake of example, let's say you want 24 months of savings.

You lose your job, and you could use your burn rate savings for at least 2 years, and live as you do now. If your typical expenditures in a month is $3,000.00, then that means that you would need savings of approximately $72,000.00 to last you for two years; that is reserved for that purpose.

Obviously, most people who are just starting out (who I try to appeal to) do not have $72,000.00

So as with all things in life ... you have to build up to that level.

Now ... what about the Challenge Project? Such an important concept is not represented. Why? Because as I've said, I have other savings accounts apart from my project.

So after thinking it over a bit throughout my day, I've decide to rename the that portion of the Challenge Project's Base Savings labeled as 'manuevering capital' to that of 'burn savings'. This capital can also be used as was the 'maneuvering capital', so this cash is flexible. But I thought it important to make note of this slight change so that I can illustrate such a key savings concept with the Challenge Project itself.

Savings Side-Pocket Balance: $800.08
(YTD cash equity up about 28.01 % Return on Capital is 0.01 % )
  • $200.00 for a Slush fund / Draw-down Kill Switch fund
  • $400.08 for a Base Savings
-$322.08 of this cash I reserve for 'burn rate / maneuvering' capital ( 80.5 %)
-$ 56.00 of this cash I reserve for CD Ladder creation ( 14 % )
-$ 9.00 of this cash I reserve for the first side-pocket purchase ( 2.25 % )
-$ 9.00 of this cash I reserve for the second side-pocket
purchase ( 2.25 % )
-$ 4.00 of this cash I reserve for the hedging account ( 0.9998 %)
  • $200.00 for Emergency Saving
* * *

Note: The above statements should not be construed as an investment or trading recommendation. Airelon's Investing and Trading Journal is a blog that allows subscribers to look 'over my shoulder' as it were, for my own personal specific trading and investing ideas and thoughts for the next week. But they are only thoughts as of the moment of publication, and are subject to change.. Any trades or investments that I discuss within this blog are simply my own thoughts regarding my own investing and trading outlook. Remember that entering any market is an individual decision. There is no guarantee that I will enter, or have entered any of the trading or investing ideas that I discuss in this blog; as larger accounts may require a different strategy as the ones presented here. This blog simply contains my trading and investing thoughts for the next week. I, the author do not grant this work for wide distribution beyond any single individual subscriber as this publication is protected by U.S. And International Copyright laws. All rights reserved. No license is granted to the user except for the user's personal use. No part of this publication or its contents may be copied, downloaded, stored in a retrieval system, further transmitted or otherwise reproduced, stored, disseminated, transferred, or used, in any form or by any means except as permitted under the original subscription agreement or with prior written permission. I personally only enter any market after watching and reading the tape and I trade using money management principles. The losses in trading can be very real, and depending on the investment vehicle and market, can exceed your initial investment. I am not a licensed trading or investment adviser, or financial planner. I do have 15 years of experience in trading and investing in these markets. Airelon's Challenge Chronicles are demo accounts,with all of the inherent problems therein, which are used within this blog in an attempt to track the results of my own thought processes., and is run as a model. Traders who should make their own decisions based off their own research, due diligence, and tolerance for risk. Any pictures used within this blog are believed to be public domain. Any charts that displayed using the ThinkorSwim platform, or any other charting software are believed to be public domain. Any other pictures were obtained through Wikipedia's public domain policy. As a reminder, any trades discussed for "Airelon's Challenge Chronicles" would only be 'day trades' according to the parameters discussed for Airelon's Challenge Chronicles, at this stage of the game in order to escape the risk of over-leveraged gap opens in the commodity futures markets. As a 'trading sister' would have grown to the $30,000 level, I would have graduated the account into 'swing trading'. In addition, it is understood that readers have read my YouTube methodology series. It is also understood that the writer of this blog has repeatedly warned against the dangers of shadowing any other traders thoughts. The Challenge accounts are run for the education of other traders who should make their own decisions based off their own research, and tolerance for risk.

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