Author Topic: Advice needed on how best to focus our savings for upcoming goals  (Read 5922 times)

Emlove

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Hi, we need some advice. We feel like we're treading water financially. We even dipped into savings in 2014 due to medical bills, a used car downpayment, too much general shopping, and expensive food choices. We are determined to buckle down in 2015 and make good progress. But, we need a clear direction in mind. Can you help? 

Husband, age 43, makes $60,000-$70,000 gross pay which comes to about $50,000 net pay.
Wife, age 36, SAHM to 2 young kids

Assets: ~$100,000
401(k) - $47,500
Roth IRA - $22,000
Employer Stock Option - $4000
Mutual Fund - $15,500
House nest egg in online savings account - $5000
Buffer in checking account - $5000

Debts:
2008 car we bought this year - $9000 loan @ 2.75%. This is our only car.
2 student loans - 8100 @ .5% and 1.5%

Goals:
Buy a House! Wife of 14 years is anxious to buy our first house. Homes in our metro are a good $350,000-450,000 for 3 bedrooms.
Currently we are putting 10% of paycheck into 401(k) and this doesn't feel like enough.
We also need to be ready for short-term things like a summer road trip and preschool in the Fall.

Questions:
Where should we put the few hundreds dollars per month that we can scrape together?
I'm guessing we should pay the minimum payments on debts since interest is so low.
Should we focus on a house downpayment or retirement?
Where should we save for a house? In our online savings account making .5%. In a stock mutual fund? Betterment?
Should we be funding the Roth IRA instead of the 401(k) with no match? Should we keep saving 10% or should we reduce this to put total focus on the House nest egg to build that up quickly?
Or should we give up on ever buying a house in order to work towards fully funding both the IRA and 401(k)?
How much money should we keep in savings/checking accounts for emergencies versus putting any extra into Stocks?

Thanks for your time and advice! We're excited to move things along in 2015.



« Last Edit: January 21, 2015, 02:35:13 PM by Emlove »

innerscorecard

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #1 on: January 20, 2015, 12:38:55 AM »
Why are your taxes so high with your family size and income? Are you claiming all applicable deductions and exemptions?

MDM

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #2 on: January 20, 2015, 01:24:44 AM »
Emlove, welcome to the forums.  innerscorecard's question might be answered with the table below - is that about right?  But the larger issue is that you might get better quality suggestions if you can provide more details on current cash flow.  E.g. see these two posts: the first gives guidelines and the second links to an organizing spreadsheet.

CategoryMonthly amt.CommentsAnnual
Salary/Wages$5,417$65,000
401(k) / 403(b) / TSP / etc.$542Room to increase?$6,500
Federal Adj. Gross Inc.$4,875$58,500
Federal tax$972015 rates, stand. ded., 4 exemptions$1,163
State/City tax$244Guess, using 5.00% * Fed. AGI$2,925
Soc. Sec.$336Assumes 1 earner paying$4,030
Medicare$79$942
Total income taxes$755$9,060
Income before other expenses  $4,120$49,440

Emlove

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #3 on: January 20, 2015, 02:39:32 AM »
More info. on our trainwreck of 2014.

Income: 71900 gross, 12000 from overtime. (Husband made 20,000 of overtime in 2013, so this year was tight.)
10% to 401(k) no match 7190
Minus 5920 taxes/SS/disability, 7240 to healthcare premiums!, 2500 FSA contributions
Net pay: 49050

Healthcare premiums are even more this year.
We have so far only been able to claim myself and the 2 kids as tax deductions. Even adding a 10% tithe and one year I bothered to add up all the medical expenses beyond the FSA fund and still the child deductions give us more back than itemizing.

2014 Spending
Dwell: 12973
     rent: 9600 (50% of going rate in our neighborhood)
     util.: 2351
     cell: 410
     basic cable/internet/netflix: 612
Give (10% tithing, PTA): 7388
Eat: 8748 (YIKES)
     cook: 6447 (some allergy-free foods)
     dine: 2301 (some days no energy to cook)
Heal: 6677 (autoimmune disease, special needs child)
     Dr. co-pays/labs: 5079 (used 2500 FSA)
     Rx: 1280
     fitness: 318
Go: 5073 (husband bikes to work most days)
     gas: 2400
     car ins.: 590
     reg.: 131
     parking: 71
     bus: 430
     car maint.: 1287
     bike maint./clothes: 207
Used car downpayment: 8470 from savings
Owe: 3494 (will be 325/mo. or 3900/yr for 2015)
     BS/BFA loans $8157@1.5%: 2410
     used car loan $9685@2.74%: 1084
Travel: 2023 (road trip to relatives, activities, food, first kid-free trip on a weekend)
Learn: 895 (school field trips, summer swim lessons, kid dance)
Buy: 3505 (replaced broken laptop, toiletries, toys, books, library fines, crafts, life ins., Christmas)
Style: 4028 (clothes/shoes, hair, make-up, Christmas) ACK! Ummm...fluctuating weight needed a size-up wardrobe, replacing husband's worn work clothes, various weather shoes, too many kids clothes
Do: 1020 (National Parks, camping, hunting, zoo, family outings, babysitting)
Work: 668 (classes, prof. org. fees, career coach)

Grand total: 64962 (overspent by 13412, dipped into savings)

For years I've asked husband to get a better job in our tech-city metro saying that our basic needs of medical & allergy-free food raises our baseline, and we are behind on goals of house and retirement, but he hasn't budged. He has zero confidence and feels he needs to get training to move from running computer programs to being able to write code.

deborah

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #4 on: January 20, 2015, 03:28:22 AM »
I assume you are the wife. You really need to get your expenses in order. Once the expenses come down, maybe your husband will feel there is room to move on getting a better job. He is probably correct about needing more training to make the change you suggest.

The food bill is insane. Granted, some things that are allergy-free cost more, but some cost less, and when I was on allergy-free diets, I spent about the same as I had previously - in fact, I spent less because it was difficult to eat out on an allergy-free diet. Healthy things like vegetables cost very little. MMM buys organic food on his budget.

You seem to use the car a lot. Your husband is doing his bit and cycling to work, so I assume you are using the car to do shopping... See if you can combine trips like MMM suggests.

Parking fees, and library fines can be avoided. Fitness can be done at home. Can you tithe net rather than gross? Clothes should be less. Gosh - I bought one jacket last year - and SO bought no clothes. Yes, children need clothes, but when I was a child all my clothes were second hand. With you spending more than you earn, you really need to source these (and toys) second hand.

Set yourself a budget each week, and stick to it. Yes, your medical expenses probably raise your baseline, but I would expect you to be able to do it in less than $40,000 for your family.

innerscorecard

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #5 on: January 20, 2015, 04:45:34 AM »
There's a lot of fat in that budget. That's good news! It means it can get a lot more efficient.

gecko10x

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #6 on: January 20, 2015, 05:15:40 AM »
Sorry to be harsh, but I think you need to hear it...

Give (10% tithing, PTA): 7388
...
(overspent by 13412, dipped into savings)

So, you basically financed someone else's money issues. You need to get your spending under control before you give away your money!

Also, you don't have "a couple hundred" a month to save. You are spending more than you make! Fixing this should be your only priority; make a budget and stick to it. Then we can talk about what to do with your savings ;-)

ShoulderThingThatGoesUp

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #7 on: January 20, 2015, 05:33:49 AM »
Frankly there is no motivation for your husband to get a better job until the two of you are saving something, because with that budget it looks like the better job would get eaten up by spending.

MDM

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #8 on: January 20, 2015, 12:27:26 PM »
Questions:
1. Where should we put the few hundreds dollars per month that we can scrape together?
2. I'm guessing we should pay the minimum payments on debts since interest is so low.
3. Should we focus on a house downpayment or retirement?
4. Where should we save for a house? In our online savings account making .5%. In a stock mutual fund? Betterment?
Should we be funding the Roth IRA instead of the 401(k) with no match? Should we keep saving 10% or should we reduce this to put total focus on the House nest egg to build that up quickly?
5. Or should we give up on ever buying a house in order to work towards fully funding both the IRA and 401(k)?
6. How much money should we keep in savings/checking accounts for emergencies versus putting any extra into Stocks?
1. As things stand, you are depleting your after tax savings in order to fund the 401k.  Not the worst idea in the world, but as others have noted it would be far better to cut spending now so you have more to invest.
2. Yes, that seems correct.
3. Depends which is more important to you.  Currently that does seem an "either or" choice.  But with some changes (see #1) you could have both.
4. See #3.
5. See #4.
6. The $10K you have now seems fine.  One could argue a few thousand dollars either way but you are likely in the right ballpark.

What do you think?

neo von retorch

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #9 on: January 20, 2015, 01:01:42 PM »
Travel, Buy and Style add up to $800 / month. There is room here to cut this down. Yes - some of these things will be important to you going forward, but in the short-term, making sure you Spend Less Than You Earn is more important. Once you have a cash-flow positive budget with the necessities, you can start to add some of these niceties back in, carefully deciding what really creates joy in your lives.

STYLE needs to become SLTYE!

4alpacas

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #10 on: January 20, 2015, 03:02:53 PM »
Goals:
Buy a House! Wife of 14 years is anxious to buy our first house. Homes in our metro are a good $350,000-450,000 for 3 bedrooms.
Other posters have provided excellent feedback about your budget.  I just want to point out that you can't afford a house.  Assuming you can pull together a 20% down payment and find a house at the bottom of the range, you're still going to have a mortgage for $280k.  With a mortgage rate at 4%, you're looking at a payment of $1336/month.  This doesn't include insurance or taxes.  You pay $800/month for rent.  STAY!

Quote
Where should we put the few hundreds dollars per month that we can scrape together?
I don't see the few hundred/month left over.  It appears you're overspending, so I would recommend putting the money into an easily accessible savings account to avoid credit cards.
Quote
I'm guessing we should pay the minimum payments on debts since interest is so low.
Some posters may have a different position, but I would focus on paying off your car loan.  I think a loan on a depreciating asset is dangerous.  Paying off your car loan will help free up some monthly cash. 
Quote
Should we focus on a house downpayment or retirement?
You can't afford a house, so I would focus on retirement.
Quote
Where should we save for a house? In our online savings account making .5%. In a stock mutual fund? Betterment?
You can't afford a house.  You're already over budget, so a house in your area would be a huge mistake. 
Quote
Should we be funding the Roth IRA instead of the 401(k) with no match? Should we keep saving 10% or should we reduce this to put total focus on the House nest egg to build that up quickly?
Or should we give up on ever buying a house in order to work towards fully funding both the IRA and 401(k)?
Keep contributing to the 401k.  No house.  Your husband is 43.  When does he want to retire?  With your current spending ($64,962) and your 401k savings ($7190), your husband will need to work an additional 45 years before retirement if you exclude SS (and I've neglected to include the fact that you spent more than you earned last year).     

LadyStache

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #11 on: January 21, 2015, 09:55:01 AM »
More info. on our trainwreck of 2014.

Income: 71900 gross, 12000 from overtime. (Husband made 20,000 of overtime in 2013, so this year was tight.)
10% to 401(k) no match 7190
Minus 5920 taxes/SS/disability, 7240 to healthcare premiums!, 2500 FSA contributions
Net pay: 49050

Healthcare premiums are even more this year.
We have so far only been able to claim myself and the 2 kids as tax deductions. Even adding a 10% tithe and one year I bothered to add up all the medical expenses beyond the FSA fund and still the child deductions give us more back than itemizing.

2014 Spending
Dwell: 12973
     rent: 9600 (50% of going rate in our neighborhood)
     util.: 2351
     cell: 410
     basic cable/internet/netflix: 612
Give (10% tithing, PTA): 7388
Eat: 8748 (YIKES)
     cook: 6447 (some allergy-free foods)
     dine: 2301 (some days no energy to cook)
Heal: 6677 (autoimmune disease, special needs child)
     Dr. co-pays/labs: 5079 (used 2500 FSA)
     Rx: 1280
     fitness: 318
Go: 5073 (husband bikes to work most days)
     gas: 2400
     car ins.: 590
     reg.: 131
     parking: 71
     bus: 430
     car maint.: 1287
     bike maint./clothes: 207
Used car downpayment: 8470 from savings
Owe: 3494 (will be 325/mo. or 3900/yr for 2015)
     BS/BFA loans $8157@1.5%: 2410
     used car loan $9685@2.74%: 1084
Travel: 2023 (road trip to relatives, activities, food, first kid-free trip on a weekend)
Learn: 895 (school field trips, summer swim lessons, kid dance)
Buy: 3505 (replaced broken laptop, toiletries, toys, books, library fines, crafts, life ins., Christmas)
Style: 4028 (clothes/shoes, hair, make-up, Christmas) ACK! Ummm...fluctuating weight needed a size-up wardrobe, replacing husband's worn work clothes, various weather shoes, too many kids clothes
Do: 1020 (National Parks, camping, hunting, zoo, family outings, babysitting)
Work: 668 (classes, prof. org. fees, career coach)

Grand total: 64962 (overspent by 13412, dipped into savings)

For years I've asked husband to get a better job in our tech-city metro saying that our basic needs of medical & allergy-free food raises our baseline, and we are behind on goals of house and retirement, but he hasn't budged. He has zero confidence and feels he needs to get training to move from running computer programs to being able to write code.

1. You spent over $18,000 on a USED car. That's a lot. I bought a car for less than that brand new.

2. $729 per month on food for 4 people is pretty high (PLUS the amount included in your travel spending, so it's even higher than this amount). Stop eating out so much.

3. For the prescriptions, does your health insurance offer prescriptions by mail? Mine does and in exchange for using it, I receive a 90-day supply while only paying the co-pay amount for a 30-day supply. If you have that option and you're not already doing so, that would be a great area for additional savings.

4. How are you spending $200 on gas every month if you're husband is mostly biking to work and you're a SAHM? AND you also have a bus pass? I don't get it.

5. The travel and do categories look like they're actually pretty similar concepts and you just broke them up so you would feel better about how much you were spending. Family trips/activities = $3043. If you're serious about wanting a down payment, you really need to get this under control.

6. I would also try to break up the buy and style categories further. I'm not sure why you have Christmas gifts in both of these categories. And maybe you can consider doing haircuts for the kids at home. Also, this includes crafting -- could you make something that can be sold on etsy for a profit?

Scandium

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #12 on: January 21, 2015, 10:52:27 AM »
This car budget makes no sense to me. You spend more than we do on gas, and we have two cars and I commute 35 mi/day! And how did you buy an $18K car AND spend $1,300 on maintenance?! We spend maybe $500 on maintenance in a bad year.
We make twice what you do, and our two cars are worth less than your one..

Emlove

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #13 on: January 21, 2015, 12:06:29 PM »
Thanks to the people who answered my questions. We will keep focused on retirement savings and put off the house downpayment for now.

Like I said, I already know the areas where we overspent. 2014 was a bad year of emotional survival mode. I have lived within a budget in the past, not used a credit card in 7 years, paid off debt early, built up 5 months of emergency savings, etc. Back then we were saving a few hundred a month, and I know we can do it again. We just lost all traction after The Year of 80+ Doctor Appointments.

Further explanations:

Yes, we have great rent and plan to stay here as long as possible. Landlord is very elderly so we just want to be ready for where to go next.

The car maintenance money was spent on a 13 year-old car a few months before the mechanic told us it needed an additional few thousand dollars of repair. That's when we decided to get rid of it for another car that we hope will last just as long. Gas is used the most to/from school (no bus), Dr. appointments, family day trips, camping trips in the mountains a couple hours away, and weekend trips to see family a few hours away. Bus expense is for trips here and there. Bus service is awful and an annual pass would be $1200/person.

The clothes were bought in 3 sizes for myself due to weight fluctuations, so I only ever have 3 pants in my current size. That doesn't feel excessive to me. I also bought 1 sturdy pair of shoes, 3 bras (special order size), 3 exercise pants, 1 skirt (used), 1 shorts (used), 3 blouses, 3 sweaters (2 used), and the rest are Target t-shirts that quickly get stains in them from having little kids. Even with a limited, non-designer wardrobe, buying pants for every size adds up. I usually check consignment stores for kids clothes before buying new. This year, I bought a lot at consignment stores and much of it turned out to be too big for my kid, so I have clothes in the closet to grow into. I listed Christmas in the clothes budget because each of us got something clothes-related as a gift. Kids each got a pair of shoes, husband got a warm layer for biking as his only gift, and I got a $30 purse as my only gift. We got the kids some toys/books that came out of the Buy category.

Prescriptions are not covered because they are considered alternative therapies.

I know I'm not addressing everyone's questions, but I need to get going on the day.

Anyway, the damage is done, we will move forward from here. We came up with a plan last night on what exactly to cut from the budget. We hope this coming year will be a great turn-around in finances, health, and life.



4alpacas

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #14 on: January 21, 2015, 01:33:53 PM »
Emlove, I applaud you for taking the harsh criticism well.  I look forward to hearing about your journey in the future. 
Anyway, the damage is done, we will move forward from here. We came up with a plan last night on what exactly to cut from the budget. We hope this coming year will be a great turn-around in finances, health, and life.

What are you planning with your budget? 

Emlove

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #15 on: January 21, 2015, 02:23:21 PM »
Yeah, I'm not sure I took the harsh criticism so well as I've been very discouraged from some of the responses which feel like ridicule. I guess I'm too sensitive a person to post on a public forum. I appreciate the people that gave me helpful steps to take and encouragement for the future.

The reduced budget plan:
cutting some Dr. visits that aren't currently effective for their cost
be extremely thoughtful about clothes/general spending/souvenirs
no more PTA donations
selling some small furniture, baby gear
no new books, keeping on top of library due dates
packing more lunches from home
cutting back on babysitting
buying cheap toiletries instead of toxic-free
cutting back on organic food

Small decisions that will hopefully add up. We may look into getting a cheaper car and research moving to a lower cost-of-living area, if these small choices don't make enough of a difference.

LadyStache

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #16 on: January 21, 2015, 02:44:00 PM »
Yeah, I'm not sure I took the harsh criticism so well as I've been very discouraged from some of the responses which feel like ridicule. I guess I'm too sensitive a person to post on a public forum. I appreciate the people that gave me helpful steps to take and encouragement for the future.

The reduced budget plan:
cutting some Dr. visits that aren't currently effective for their cost
be extremely thoughtful about clothes/general spending/souvenirs
no more PTA donations
selling some small furniture, baby gear
no new books, keeping on top of library due dates
packing more lunches from home
cutting back on babysitting
buying cheap toiletries instead of toxic-free
cutting back on organic food

Small decisions that will hopefully add up. We may look into getting a cheaper car and research moving to a lower cost-of-living area, if these small choices don't make enough of a difference.

Aaw. Don't get discouraged! There's a lot of steps you can take to get into a better position financially; we're just trying to help you figure them out. And it sounds like you discovered a bunch of great ways to cut down your budget. You're off to a great start! :)

4alpacas

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #17 on: January 21, 2015, 04:04:47 PM »
Yeah, I'm not sure I took the harsh criticism so well as I've been very discouraged from some of the responses which feel like ridicule. I guess I'm too sensitive a person to post on a public forum. I appreciate the people that gave me helpful steps to take and encouragement for the future.

The reduced budget plan:
cutting some Dr. visits that aren't currently effective for their cost
be extremely thoughtful about clothes/general spending/souvenirs
no more PTA donations
selling some small furniture, baby gear
no new books, keeping on top of library due dates
packing more lunches from home
cutting back on babysitting
buying cheap toiletries instead of toxic-free
cutting back on organic food

Small decisions that will hopefully add up. We may look into getting a cheaper car and research moving to a lower cost-of-living area, if these small choices don't make enough of a difference.
I understand how comments on forums can sting.  However, you've taken the feedback and made some actionable steps toward improving your financial situation. 

Good luck with your plan of action!  When I started making changes, I didn't make a complete 180.  I focused on the area that could make the biggest impact (and least strain in my relationship) and worked to whittle it down. 

YoungMoney

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Re: Advice needed on how best to focus our savings for upcoming goals
« Reply #18 on: January 25, 2015, 06:05:41 PM »
Could you save on gas by carpooling with other parents? You could also save on babysitting by trading off childcare. That way you still get a break now and then. Since you stay at home, you could even possibly make some money by providing in-home care for other kids on a regular basis.