Author Topic: How do you balance saving for large purchases and saving for FI?  (Read 704 times)

xpauliber

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My wife and I are 35 and starting our journey to FI.  Obviously, one of the first steps was to eliminate debt and then remain debt free.  Currently we have a mortgage, 1 car loan, and 2 student loans that we are working on eliminating.

To avoid getting back into debt, Iím starting to look at all of the different major purchases that we will have to make in the next several years and estimate a cost and divide it by the number of months until Iíll need the money.  The issue Iím having is that I can come up with many different capital purchases that will need to be made (roof on house $12,000/36 months, tires on both vehicles $1400/24 months, refrigerator $600/24 months, other appliances $1200/??, vehicle $15,000/18 months, etc.) but I also am working on saving as much as possible into her 401k to get the company match. She just got a 3% raise at work and I redirected all of it into her 401k.

 Is there a better way to save for capital purchases?  Do I just build my emergency fund up higher and try not to anticipate every possible purchase Iíll have to make and use my EF as things come up?

katsiki

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #1 on: June 13, 2018, 07:29:09 AM »
I would just build up a suitable EF (suitable to you by the way).  Also, personally, I would not include smaller items like appliances in my calculation.  You may be surprised how long the average appliance lasts.  I know I am...

Hope this helps a bit.
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elliha

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #2 on: June 13, 2018, 07:50:00 AM »
How do you know you will need a new refrigerator in 24 months? Are you doing some work on the house? I mean, I have an 18 year old refrigerator that I don't really expect will break anytime soon. It might but since I rent it is not my cost but still, I have no time plan for it. Having good tires for your car is important but have looked into if there are cheaper ones available? We have bought most of our tires online and saved a lot compared to regular stores. You do have to pay to have someone put them on the rims but it was still much cheaper.

Things will break, that is inevitable but I think you are being almost overly pessimistic here. They may all break at once and that will suck but that really isn't a very likely scenario. Keep the things you have and don't get new ones until it is absolutely necessary and a lot will sort itself out.

Lady SA

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #3 on: June 13, 2018, 08:07:00 AM »
We just have sinking funds for major buckets of spending -- vacations, home maint, car maint/replacement, etc. This is similar to what you are doing, however we don't specify it down to the level you are. Like I said, we have a "home maintenance" sinking fund, not a "roof replacement", "fridge", "appliances", etc individual sinking funds. We set up a spreadsheet thing to annualize our house maint costs for everything we could think of, and that is just a single line-item in the budget and gets redirected to a savings account.

Is the problem that you don't have enough money to both save in her 401k AND save up for these upcoming spending events? In that case, you don't have a savings mechanism problem. You have a cashflow problem. Is there anything in your spending you can cut to give yourselves more room? Can you increase your income by switching jobs or starting a side gig?
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neo von retorch

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #4 on: June 13, 2018, 08:08:59 AM »
Quote
many different capital purchases that will need to be made

As you progress towards FI, one of the biggest lessons is learning to spend money on what you value, and to be very discerning about the word "need."

As others said, it seems very strange to expect to replace various appliances. Worse, you have a car loan, but you expect to spend $1400 in the next two years on two sets of tires AND BUY ANOTHER CAR IN 18 MONTHS? Surely you don't need fancy tires on a car that you bought just 6 months earlier. Maybe you don't need a vehicle any time in the next 5 years... and if you do, but it's such a burden that it's slowing down your path to FIRE, maybe $15k isn't the right budget for that car.
« Last Edit: June 13, 2018, 08:11:05 AM by neo von retorch »

beattie228

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #5 on: June 13, 2018, 08:10:10 AM »
My plan is to have an emergency fund that I'm comfortable with. Some advise 6M, I prefer closer to a year. Whatever number helps you sleep at night. I use that to tackle any unforeseen expenses and downshift my savings/investment contributions for that month or the month after if needed to get it back to my desired amount.

You'll drive yourself mad trying to estimate any number of expenses that may come your way. My view is the various things you've listed are the exact reason to have an emergency fund.

rdaneel0

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #6 on: June 13, 2018, 08:23:11 AM »
I think you're still in a consumer mindset. You still have debt and your concern with FI savings/planning is how to make future purchases!

We handle it really simply, we have no debt and a cash emergency savings fund of $10k. For us (we are not homeowners and have no dependents) this amount of cash is enough to get us through any non life threatening emergency. If we have to move suddenly, replace furniture, pay for transportation, etc. we pull it from that fund and then pile in money until it's back to $10k. I don't think we've ever emptied it completely, and we've only drawn from it at all a couple of times in the last 10 years (once was to rent a car for an unexpected funeral, another time was for a new laptop when both of ours suddenly broke).

I agree that you're anticipating too many expenses. If you have a savings fund you're comfortable with, no debt and a great savings rate, it's generally not hard to pay for major purchases. We set our investment savings rate according to the year we want to retire, any extra money we don't spend on monthly expenses goes to our savings account. If too much money piles up in savings we either move it to an investment account or we have it earmarked for travel. In this way we're able to save for things like vacations, little by little, without affecting our retirement date negatively.
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formerlydivorcedmom

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #7 on: June 13, 2018, 09:07:35 AM »
We use our emergency fund for capital purchases.  We had to empty it earlier this year due to unexpected medical and legal costs, so to build it back up I'm slowly redirecting money - not from our savings, but from our spending.

My husband wants a new car, one worth only about $5k.  I told him that we don't have the money right now, but once the EF gets a little bigger, I'll start earmarking money for the car.  He's unhappy..but he gets it.  His car runs, and we're not going into debt over a car again.
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tooqk4u22

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #8 on: June 13, 2018, 09:28:50 AM »
We just have sinking funds for major buckets of spending -- vacations, home maint, car maint/replacement, etc. This is similar to what you are doing, however we don't specify it down to the level you are. Like I said, we have a "home maintenance" sinking fund, not a "roof replacement", "fridge", "appliances", etc individual sinking funds. We set up a spreadsheet thing to annualize our house maint costs for everything we could think of, and that is just a single line-item in the budget and gets redirected to a savings account.

Is the problem that you don't have enough money to both save in her 401k AND save up for these upcoming spending events? In that case, you don't have a savings mechanism problem. You have a cashflow problem. Is there anything in your spending you can cut to give yourselves more room? Can you increase your income by switching jobs or starting a side gig?

This was what we do with two parts -
(1) when we bought the house we estimated how long most stuff should last and cost to replace and put that amount in the account upfront (ie HVAC cost $8k to replace but is 75% through its est. useful life then we put $6k in the account. These are just estimates that can go either way such as when I expected to get 5 more years out of the HVAC but only got 1 because the cost to repair and replace the parts that were broken it just made more sense to redo the whole system, on the other hand the roof on my last house needed replacing but wasn't leaking (yet) so that got pushed off a few years more than I had planned. 
(2) add $400 per month thereafter and take out for all repairs/replacement related to house and car. 

The car replacement part is the one I struggle with though bc there is a "want" more than a "need" aspect to it.  Really in most cases you can probably fix any problem for a few grand or even buy a replacement car for a few grand to solve the need but you may want something a bit newer or nicer. 

As for the people that don't believe appliances fail, that's not my experience.  It seems that we are replacing something every other year or so - granted you are talking about $500-1000 so well within my $400/month so I really don't plan for it specifically. 
« Last Edit: June 13, 2018, 09:31:40 AM by tooqk4u22 »

Zikoris

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #9 on: June 13, 2018, 09:36:52 AM »
Well, we basically just designed our lifestyle in a way that large purchases are not part of it. A bit unorthodox, but always an option. So we just sidestep that entirely, and all of our savings goes towards FI.
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marcela

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #10 on: June 13, 2018, 12:25:02 PM »
We try to be relatively frugal, but still have some funds set aside for unexpected health bills (ours and the dog's), a general maintenance fund that covers car stuff/house stuff, emergency travel (family out of state and in my case out of country).

My husband is more risk adverse so he's the one with the emergency fund in his accounts whereas I shovel money into the market through our retirement and taxable accounts. We are going to max out retirement this year so we've got it well balanced.

FIRE 20/20

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Re: How do you balance saving for large purchases and saving for FI?
« Reply #11 on: June 17, 2018, 11:51:51 AM »
WTF.  You have one car loan and student loans and you're looking at buying more stuff?  $15k is serious overkill for a car if you are in debt and want to reach FI.  And a new set of tires shouldn't cost $700 per car.  I'm guessing that you have one clown car and are looking at buying another one if you're spending that much money on tires.  I did a quick price check on tires for a 2015 Nissan Versa (~7k-11k) and the most expensive set I could find on the TireRack's website was $420.  I'm sorry for the facepunch, but this is the MMM forums not the SMB (spend money blindly) forums.  I think @rdaneel0  is correct; you are still stuck in a consumer mindset. 

To get a decent answer I recommend a case study.  We don't know the size or interest rate of the existing car loan, the size or interest rate of the student loans, income, family status, food budget, spending on cable TV, or anything else that would help make a good recommendation.  From what you've posted so far I would guess that you have enormous amounts that could be cut that would leave room for plenty of savings to fully fund everything, but there's no way to be sure with the sparse details you've provided.