Lesson paraphrased from lrjohnsons blog -

--Aren't we nickel and diming our savings when we fail to do financial planning on what we save? Saving is one thing; making money and saving money as we make money is another, more important piece.

Its a bit like this: when we first learn to save, we're trying to pay off debt to keep from drowning; a good saver can tread water for a very, very long time, but not get anywhere; but plan your finances along with saving and you swim somewhere - the stronger the planning, the stronger and faster you'll get away from the sharks and onto that tropical island.

This is my financial plan, and I'm the first one to tell that I have plenty of holes and gaps to fill.

My finances are like a three layer cake. Layer one is lemon - the 6 month emergency fund (for when life gives you lemons). How much is easy: I count paychecks. I don't bother with expenses - if you live at or below your means, your means become a unit of measure. I get paid twice a month, $1100/paycheck, net. My final emergency fund should be $2,200 x 6 or $13,200.

The lemon layer should be lemon creme - gooey and nearly liquid, but it still should earn as much as possible. I have most of my money in ING. I like the interface and that I can move money within a day, but I've become increasingly dissatisfied with the interest rate. So I've put a little bit of it (1 months' paycheck) in a 5% 6-month CD. I'm still not thrilled with the interest rate and that its locked up for 6 months. (Interest rates have been rising, so when its locked up you get left behind) I've been buying 4-week T-bills at a bit above 5%. I have two months worth of paychecks in T-bills spaced two weeks apart, and I've made the transactions repeat. The mature T-bill gets deposited in the same spot that the next T-bill gets bought from.

Layer two is the carrot cake. Intermediate layer (5-10yrs); healthy and diversified, and as tax deferred as possible. But percents and tax deferral matter here. I figure my I-bonds are here (5 yrs), and so is my little DRP portfolio (10 yrs or so). I like my DRPs here, because I can put money into stocks, the dividends are reinvested with nearly no fees. My KO drp charges a $1 to do online purchases (2% fees for a $50 purchase - which is barely acceptable). I pay taxes on the dividends, and I plan to buy and hold, so sell only after I get the long term capital gain (these days, only 366 days), or if the stock absolutely sucks. The inheritance CD is here too, and while I plan to slot it in as intermediate money, I haven't yet finalized my plans.

I don't really have a target dollar amount here, so I don't know when to stop with the intermediate cash. I know that my lemon layer protects me against the bitter carrot bits, sour pineapple, and dry coconut

Layer three is pure chocolate. Long term layer (+20yrs); inflation, fees, and taxes are your primary concern here. I have a current 403B, an old 403B and a traditional IRA. I plan on starting a Roth in 2007; I'm also thinking about converting the traditional IRA to a Roth. I get a match, so it is like adding chocolate chips to the cake. Stocks (equities) comprise 90% of what's in these accounts, bonds 10% - I have a lot of T-bills, I-bonds, and CDs in the other layers. My concern here is that my 403B charges excessive fees, as compared to Vanguard.

Two disparate analogies - cake and swimming - just make sure you wait an hour before doing them both.