Author Topic: Case Study: Help me balance short term and long term savings?  (Read 2795 times)

snafuing1

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Income: I just got a job making 79k pretax (was making 45k pretax the first half of the year), my soon-to-be spouse makes about 18k pretax but his hours vary. We have joint finances.

Current expenses:

Rent: $574
Internet: $41
Electric/Water: ~$100
Groceries and Household Items: ~$300
Gas, oil, repairs: $250
Car insurance: $60
Health Insurance: $0, unless we add to my HSA, employer adds $250 in June and December no matter what
Dental insurance: $68
Renter's insurance: $10
His cell: $37
My cell: $0 (on parents' plan still)
Spotify: $5
Clothes, gifts, fitness stuff: $50
His discretionary: $200
My discretionary : $200
Vacation: $25

TOTAL: $1820

Assets:
- checking account: ~2 months living expenses or ~$3.5k
- 1% interest savings account: 13.5k
- paid off Corolla with 138k miles
- paid off Chevy Aveo with 85k miles.

Investments:
- 5.5k in a Roth IRA (target 2050 retirement fund) with vanguard
- he has 2k in bonds bought for him at birth
- ability to contribute to a 401k with access to the vanguard 2050 target fund and 5% employer match, set to 5% currently

Liabilities:
- 8.5k student loan at 6.7%, in grace til November

Specific Question(s):
I'm trying to balance long and short term savings.We shouldn't hit the 25% tax bracket this year no matter what if I've calculated correctly, but I think I want to go with the traditional 401k anyway? The big question is that in fall 2015 he will be attending a 2 year school program with a total cost of 20k, and we'll be moving across the country. The cars won't last forever either. What percent can I afford to put in my 401k? How much should I keep relatively liquid for these shorter term expenses?

Oh also feel free to tell me I spend too much money cause that's probably true... Or give any other advice. I'm new to FI and all. Thanks guys!
« Last Edit: July 13, 2014, 09:55:17 AM by snafuing1 »

snafuing1

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Re: Case Study: Help me balance short term and long term savings?
« Reply #1 on: July 13, 2014, 09:59:52 AM »
I revised the OP with more and better organized information.

Chrissy

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Re: Case Study: Help me balance short term and long term savings?
« Reply #2 on: July 13, 2014, 10:49:37 AM »
Actually, your spending looks great!

I think you're looking at $20,000 for school, $10,000 for a car, and $500 $2,000 in moving expenses:  $32,000.

Looks like you can save ~$4,200/mo.  You have 13 months before you quit your jobs he quits his job, and you both move for him to pursue more education.  That's $54,600 you can save.

So, take the money you have sitting in savings right now, put $11,000 into 2014 ROTHs ($5,500 for you, $5,500 for him), and the remaining $2,500 toward the student loan and pay off the student loans.  Put the remaining $5,000 into a 2014 ROTH IRA for you.

$54,600
-32,000
$22,600 into retirement/debt repayment

$32,000 into cash savings at $2,462/mo over 13 months
$9,639 into your 401k at $1,071/mo (16% of your gross) for 9 mo, Aug-Apr
$6,000 into ROTHs for 2014 at $667/mo over 9 mo, Aug-Apr... $500 for you, $5,500 for him
Add an additional $6,952 into your 401k by upping your contribution to $1,738 (26% of your gross) for 4 mo, May-Aug

You'll end with a total of $16,600 in the 401k.

Starting in September, you lose his income and will have different expenses, so you'll have to completely readjust.


I did these calculations assuming the 25% tax bracket anyway.  If you end up with extra money, beef up your emergency funds to 3 months living expenses, and put any remaining in 2015 ROTHs.
« Last Edit: July 13, 2014, 03:04:46 PM by Chrissy »

snafuing1

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Re: Case Study: Help me balance short term and long term savings?
« Reply #3 on: July 13, 2014, 12:37:23 PM »
Chrissy, thank you so much for breaking it down like that! This is so much simpler and less intimidating than what I was picturing.

Even better, I do not have to quit my job to move. Sorry I didn't mention that! I should be able to just keep working remotely and/or on-site at the branch of my company in the new city.

The only thing I am concerned with is that a cross-country move will take more than $500. If we want to keep both of our cars, it's about $700 to ship a car across the country, or $350 in gas + wear and tear + depreciation due to mileage + lodging to drive one of our cars that far. We are thinking we will probably ship one and drive one to avoid plane ticket costs? Alternately, for bonus mustache points, we may sell one car and attempt to get by on sharing the other in the city we're moving to.

I am surprised you advocate funding 2 IRAs before paying off the loan! I am not sure I am comfortable with that - this is the only debt I've ever had and I really don't like it!

Chrissy

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Re: Case Study: Help me balance short term and long term savings?
« Reply #4 on: July 13, 2014, 02:12:55 PM »
Okay, with the new information, I'm going to look again, and revise my thoughts.

Why don't you drive both cars across the country, little ole convoy-style?  Or, yes, drive one, sell the other.

I advocated putting the money into the ROTHs because I assumed interest was NOT accumulating on the student loans while they were "in grace".  If that's not the case, then, by all means, pay them off!

snafuing1

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Re: Case Study: Help me balance short term and long term savings?
« Reply #5 on: July 14, 2014, 07:46:13 PM »
THANK YOU. :) I think I have a plan now!

(To clarify about the student loans, my understanding is that they don't accumulate interest until they go out of grace, but they second they do I get back-charged interest for the grace period.)

JGB

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Re: Case Study: Help me balance short term and long term savings?
« Reply #6 on: July 15, 2014, 10:01:32 AM »
When my wife and I made a cross-country move in 2011, we sold one car on the East Coast and actually intended to buy another upon arriving in the MidWest. Research showed that, at that current time, I could actually buy the same car I had for a couple thousand less than I would get for selling it.

Now, we're looking at 3 years since returning. We never ended up buying the second car. There's a backstory there, but in short, initial salary after moving was way less than expected, which forced a delay. By the time we could have afford to buy the second car again, we had adjusted to life with just one car, and could not see any reason to add the expense of an extra insurance premium. Now the idea of having two just seems silly.