The Wedding Cake

Aligator said: "Arrange your finances in the style of a wedding cake. [B]The Top Layer[/B] of your wedding cake represents your checking account. This is where all your money enters your system and is where you go for ordinary expenses. You should learn to live on less than 80% of your monthly income and you should not have more than 30 days supply of money in this account. The excess should be sent to; [B]The Intermediate Layer[/B]. The [B]Intermediate Layer[/B] of your wedding cake should be held in a money market account, which is linked to your [B]Top Layer[/B]. Money in the [B]Intermediate Layer[/B] should be used for out-of-ordinary expenses and should contain not less than four month's supply of money. If you are saving for a car or vacation or trip this is where the money should be saved, but you should always retain at least four month's supply of money in your [B]Intermediate Layer[/B]. You should begin building the [B]Foundation Layer[/B] of your wedding cake immediately even if you have not completed your Intermediate Layer. Send money to your [B]Foundation Layer[/B] every month even if you can afford to send very little. Do not send money that you expect to ever use to the [B]Foundation Layer[/B]. Send only the money that you are confident will not be needed during your working life. [B]Foundation Layer[/B] assets are things like mutual funds, stock trading accounts, 401(K) accounts and your house. Since your house resides within your Foundation Layer it is legal to use liquid assets [but not 401(k)] accumulated here to buy a house, but not to buy a car. When completed your wedding cake will contain 1 month's supply of money in the [B]Top[/B], 6 month's supply of money in the [B]Intermediate[/B], and not less than 10 year's supply of money in the [B]Foundation[/B]. Begin."

Kloewer said: "Nice analogy, and great advice."

AlfredSokol said: "What do the crumbs represent?"

Aligator said: "[QUOTE=AlfredSokol;69248]What do the crumbs represent?[/QUOTE] Crummy ideas?:roll:"

tomtat1 said: "What purpose does the top layer serve? If your checking account is linked to a money market that has 6 months worth of expenses in it. Why have 1 month’s worth of money in a low or no interest paying checking account?"

Aligator said: "[QUOTE=tomtat1;69326]What purpose does the top layer serve? If your checking account is linked to a money market that has 6 months worth of expenses in it.........[/QUOTE] We - all of us - need to learn to[I] NOT[/I] live from paycheck to paycheck. For many of us payday is a defining moment in our monthly or weekly schedules, and that is a mistake. A successful investor must learn to even out expenses and to not spend money needlessly or impulsively. The best way to do that is to pad the checking account so that you always have money, always feel affluent, but never spend all your money. To illustrate the point think back on the times when you have spent all your money and have none in your checking account........see what I mean? You do yourself real harm by being without money - even if it is only for a few days. In the wedding cake model the properly funded Top Layer protects the Intermediate Layer, which protects the Foundation."

bjohn13 said: "[QUOTE=AlfredSokol;69248]What do the crumbs represent?[/QUOTE] Frivolous spending."

tomtat1 said: "[QUOTE=Aligator;69421]We - all of us - need to learn to[I] NOT[/I] live from paycheck to paycheck. For many of us payday is a defining moment in our monthly or weekly schedules, and that is a mistake. A successful investor must learn to even out expenses and to not spend money needlessly or impulsively. The best way to do that is to pad the checking account so that you always have money, always feel affluent, but never spend all your money. To illustrate the point think back on the times when you have spent all your money and have none in your checking account........see what I mean? You do yourself real harm by being without money - even if it is only for a few days. In the wedding cake model the properly funded Top Layer protects the Intermediate Layer, which protects the Foundation.[/QUOTE] So basically you are giving up whatever gains you average in your foundation portfolio for one months worth of expenses for your entire life, in order to make yourself feel more affluent. Thinking that this will make you spend less money somehow. Usually feeling more affluent has the opposite effect on people making them spend more. Your whole strategy hinges on someone spending less than they make so there will be extra every month. Any one doing this is not living paycheck to paycheck. It’s just a matter of where you decide to park the extra money. Wouldn’t it make more sense to make a budget and send all your extra every month to your money market and from your money market on up to your investments? Then if you wanted to spend outside of your budget you would actually have to bring money back down to your checking. This in my opinion would cut down on impulse buying as you would actually have to fund it by taking money out of your investment pool. I’m also fuzzy about how the top layer protects the middle, protects it from what?"

Mr. Gekko said: "I like your model Aligator. Being a Computer Maintenance student, it reminds me of the OSI model for networking. You probably have no idea what that is so here's the Wikipedia article on it: [URL="http://en.wikipedia.org/wiki/OSI_model"]http://en.wikipedia.org/wiki/OSI_model[/URL] Anyway, I'm happy to say that I've been practicing the Wedding Cake model without even knowing it. Good stuff! :cool: I'm going to print this out for a friend who is struggling with his finances. I think it'll help."

Aligator said: "[QUOTE=Mr. Gekko;71040]I like your model Aligator. Being a Computer Maintenance student, it reminds me of the OSI model for networking. You probably have no idea what that is so here's the Wikipedia article on it: [URL="http://en.wikipedia.org/wiki/OSI_model"]http://en.wikipedia.org/wiki/OSI_model[/URL] Anyway, I'm happy to say that I've been practicing the Wedding Cake model without even knowing it. Good stuff! :cool: I'm going to print this out for a friend who is struggling with his finances. I think it'll help.[/QUOTE] I read the article about the OSI model and [I]still[/I] have almost no idea what it is. Doesn't matter much, I guess. I can still use my computer fairly well without knowing exactly what I'm doing or why it works. In that way it [I]is[/I] like the wedding cake. I have found successful investors who are using a wedding cake model in some form or another, and have shared the model with beginners as young as 14. It's kind of fun watching youngsters light up when they understand what they have to do, and realizing that exactly how they do it will be up to them. Thanks. BOL"

Mr. Gekko said: "[QUOTE=Aligator;71056]I read the article about the OSI model and [I]still[/I] have almost no idea what it is. Doesn't matter much, I guess. I can still use my computer fairly well without knowing exactly what I'm doing or why it works. In that way it [I]is[/I] like the wedding cake.[/QUOTE] Don't worry about not understanding it. It took me (as well as most of the students in my major) a whole semester to fully understand the concept. And you're right, you really don't need to know it. That's what gives people like me job security. :biggrin5: What's interesting, though, is that network data passes through every layer of the OSI model starting with layer 1 and moving up. That's why it reminded me of the wedding cake. [QUOTE=Aligator;71056] I have found successful investors who are using a wedding cake model in some form or another, and have shared the model with beginners as young as 14. It's kind of fun watching youngsters light up when they understand what they have to do, and realizing that exactly how they do it will be up to them. Thanks. BOL[/QUOTE] Yeah, I think some wedding cake is just what my friends needs. So, thank [I][B]you![/B][/I] :cornut:"