Author Topic: Financial wellness check for couple in early 30s, no kids  (Read 1715 times)

tomascid

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Financial wellness check for couple in early 30s, no kids
« on: August 08, 2018, 01:35:22 AM »
Hello wise elders of MMM!

Life Situation: Married filing jointly, no dependents, living in Hawaii

Gross Salary/Wages: $144,000 annually ($12,000/month)

Pre-tax deductions:
Traditional 401k - $700
Roth 401k - $700
Health insurance - $100

Adjusted Gross Income: $10,500

Taxes/FICA - $2,800/month

Current expenses:
- $2,000 Mortgage, P&I =$1,400, T&I = $600
- $1,750 Emergency savings (until it reaches $25,000 aka 6 months expenses)
- $1,300 Shopping
- $1,000 groceries, eating out
- $850 vacation savings
- $800 other (cell phones, utilities, gas, insurance)

Assets:
 - Car ($24,000)
- Cash ($20,000 in CapitolOne MoneyMarket savings (1.75% interest) as emergency fund, $13,000 regular checking at local credit union (negligible interest)
- Retirement ($77,000 in Charles Schwab retirement (34% Vanguard 500 Index Fund Admiral Shares [VFIAX, ER = 0.04], 33% Vanguard Short-Term Bond Index Admiral [VBIRX, ER = 0.07], and 33% Vanguard Small-Cap Index Fund Admiral Shares [VSMAX, ER = 0.05]). Of this, $12,000 is Roth contributions.)
- Home (~$80,000 in equity)

Liabilities:
Mortgage - Original loan of $300,000, 4.25% interest rate, 1 year into 30 year term, $2,000 monthly payment (including insurance, HOA, property tax)

Specific Question(s):

1.   Does this seem like a reasonable plan for a married couple in their 30ís with no kids?
2.   Are there better places to stash my emergency fund?
3.   Once Iíve reached 6 months expenses saved in my emergency fund, what should I do with the $1750/month?
4.   If we did plan to have kids, are there any tax-advantaged vehicles to save for that?
5.     Any other words of wisdom?

FirePassenger

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Re: Financial wellness check for couple in early 30s, no kids
« Reply #1 on: August 08, 2018, 02:06:18 AM »
#1: What does the $1300 a month in the shopping category cover? That's an absurd amount of money to be spending in this category. This is on top of $1000 groceries and eating out?

Assuming your grocery bill is $400/month for two people and the remaining #600 is for eating out, you're spending 25% ($1300 + $600) of your paycheck on non-essentials. Add vacation budget of $800, and that goes up to 35%!

#2: You're okay. Others can provide better advice than me.

#3: Look up VTSAX. Max out your 401k before you do this though.

#4: Research Nevada 529

#5: Not sure how long you've been making $144k for, but your net-worth numbers don't look great based on your income. You're spending $5950 out of $7700 if I ignore the emergency savings part. That's a 22% savings rate. It will take you ~35 years to retire at this savings rate.

EDIT to add this: Regular cars are not assets IMO. Also when calculating your home equity, I would deduct 6% from current estimated home value since that's how much it will cost you to sell a house and liquidate.
« Last Edit: August 08, 2018, 02:09:45 AM by FirePassenger »

Hirondelle

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Re: Financial wellness check for couple in early 30s, no kids
« Reply #2 on: August 08, 2018, 02:33:43 AM »
Could you specify your expenses further? I get living on Hawaii is pricey, but your shopping, food, vacation and other budgets all seem insanely high.

wordnerd

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ysette9

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Financial wellness check for couple in early 30s, no kids
« Reply #4 on: August 08, 2018, 08:51:29 AM »
Is there a reason why you have $13k in checking that you aren’t counting as part of your emergency fund? Add those two together and you are past your stated goal. I think you should put that monthly savings into maxing out your tax-advantages space such as the traditional 401(k).

We used to have six months of spending in an emergency fund. Then my husband read MMM’s article about killing the emergency fund and using springy debt as the cushion, and convinced me to invest that $ instead. It isn’t the right answer for everyone, but for us we had so many other levers to pull before using emergency cash that we felt comfortable dropping that down to 2 months.

For example, we were saving 50%, so our first move in the event of a job loss was to reduce savings. With two income earners you have built-in margin because it is less likely that you will be both unemployed at the same time (provided you don’t work together). I’d advise thinking long and hard about what you would actually do in an emergency and see if you can get that cash cushion lower and invest instead.

Kierun

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Re: Financial wellness check for couple in early 30s, no kids
« Reply #5 on: August 08, 2018, 11:36:37 AM »
Your groceries and shopping is quite high, OH and I, spend less than $400/mo for groceries and eating out.  And shopping is less than $100/mo so there's definitely a lot of fat to trim in your expenses.  Reducing your expenses will boost your savings and accelerate your journey to FI.  Vacation does seem a bit high, but I get it, if we want to vacation somewhere other than the island we're living on we pretty much gotta fly. 

You are 1 year into your mortgage, and you already have 80K in equity?  That seems a bit strange to me.  What was the sale price of your house?  Have you been making extra principal payments on the loan?  I would caution against doing that because you're making those extra principal payments at your marginal tax rate -- which is likely to be higher during your working years.
My guess is 20% down would have been about 70 -75k and the remaining would be through increasing property value and payments. 

Is there a reason why you have $13k in checking that you arenít counting as part of your emergency fund? Add those two together and you are past your stated goal. I think you should put that monthly savings into maxing out your tax-advantages space such as the traditional 401(k).

We used to have six months of spending in an emergency fund. Then my husband read MMMís article about killing the emergency fund and using springy debt as the cushion, and convinced me to invest that $ instead. It isnít the right answer for everyone, but for us we had so many other levers to pull before using emergency cash that we felt comfortable dropping that down to 2 months.

For example, we were saving 50%, so our first move in the event of a job loss was to reduce savings. With two income earners you have built-in margin because it is less likely that you will be both unemployed at the same time (provided you donít work together). Iíd advise thinking long and hard about what you would actually do in an emergency and see if you can get that cash cushion lower and invest instead.
^^  This.

Check2400

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Re: Financial wellness check for couple in early 30s, no kids
« Reply #6 on: August 08, 2018, 04:37:14 PM »
I've re-formatted your breakdown to make sense to me
Gross Salary/Wages:
144,000 annually- $12,000/month
Taxes/FICA - $2,800/month
Pre-tax deductions:
Traditional 401k - $700
Roth 401k - $700
Health insurance - $100
Net Income: $7,700

Current expenses:
- $2,000 Mortgage, P&I =$1,400, T&I = $600
- $1,300 Shopping
- $1,000 groceries, eating out
- $850 vacation savings
- $800 other (cell phones, utilities, gas, insurance)
Total: $5950
Net:  $1750, put into Emergency savings (until it reaches $25,000 aka 6 months expenses)

Assets:
- $20,000 emergency fund
- $13,000 regular checking
- Retirement $77,000, of this, $12,000 is Roth contributions.

Before answering your questions, there are two Questions that need to be answered by you:
1) Why don't checking funds don't count towards your emergency fund--it looks like you already have $33,000 in cash on hand?   
2) Which of Roth v. traditional 401k is best for you.  I'll bet immattdamon is right that traditional is best, especially since you're both eligible for a Roth IRA on top of 401k.

If your house is your forever house, then equity and value don't really matter, although principal paydown can be included in your savings rate if you want to feel better about your amount saved. 

Car equity doesn't mean anything to me unless you're going to cash out the equity and go carless. 

Specific Question(s):

1.   Does this seem like a reasonable plan for a married couple in their 30ís with no kids? 
-You're saving 34% of your post tax income between retirement and emergency funds.  That would put you on pace for retiring in less than 25 years with no changes, if you start investing in interest bearing accounts. (see: https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/)
2.   Are there better places to stash my emergency fund? 
-Yes, here are some options: https://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/, but you have to have the fortitude to be able to draw money out if you need to.  For some people the mental health of having it sitting there is worth forsaking the investment growth.
3.   Once Iíve reached 6 months expenses saved in my emergency fund, what should I do with the $1750/month?
-I think you're past the emergency fund threshold (i don't really care about the excessive amount you've picked, I care about the go forward plan) so max your 401ks.  You are currently putting in $1400 between the two of you.  Max per month is for two people is $3083 a month.  So, $1400 + $1750 = $3,150, or 60+ bucks in excess, and that doesn't account for the pre-tax discount on the traditional 401k contribution.  It will likely be closer to $200 in excess.  Put that $200 towards a ROTH IRA, and work towards maxing those out every year in the next step. 
4.   If we did plan to have kids, are there any tax-advantaged vehicles to save for that?
--An HSA I believe will allow for a portion of it to be used for childcare so if your employer has one start on it. This can leapfrog 401ks depending on the plan.
5.     Any other words of wisdom?
My personal anecdote to this is that the quicker I could max my retirement savings, the quicker I could start seeing my pay increases.  Once you're maxed, every dollar goes to present you instead of future you.  Setting artificial income barriers kept me from having cash in hand burning a hole in my pocket.  Plus, married savers can put away over $48,000 a year between 401k and Roth IRAs!  The fact that you can max 401ks and partial Roth IRA right now, have $33,000 in emergency funds, and $77,000 in retirements is all great news.  I would stop the emergency fund, max the 401k, determine the remainder and set up an autodeduct for a ROTH, and work on earning more/cutting costs to max those as well. 

Aside from that, sure, you spend a bit for 2 people, but Hawai'i is notoriously expenses on food and travel (can't really road trip it can ya?) so don't lose the forest for the trees.  You're doing very well, could easily start doing much better by diverting emergency funds, and can do great by maxing your Roth with some nominal spending cuts.  Just these steps will have you retired in your 40s. 

Good job and keep it up, you're doing a great job.