Case Study - help me work towards a more MMM budget (brand new user! :) )

[onlykelsey]

https://www.bogleheads.org/wiki/Prioritizing_investments

Sorry, I wouldn't necessarily max the 401K over the IRA. I am arguing for both of the above before throwing money at cheap student loan debt. 

I'd also take a look at the quality of her 401K offerings.  If they're great (i.e. she gets vanguard admiral shares even if she's not investing 10K through her administrator), I might put more there before the IRAs.  If they're not (many aren't), I might jump to an IRA (with schwab or vanguard or whatever other low-cost good provider) earlier before filling up the 401K.

Honestly, though, at your income, this should not be an either or.  You have all sorts of expenses to cut, you should be able to do both this year and have it be a non-issue.

[CmFtns]

It all depends on what tax bracket you will be in when you no longer work.

You will find that most people here plan to be in the 0-10% brackets when retired and on average are in 25% bracket when working and that is what advice is usually given for. By contributing pre-tax most people are literally pulling 15-25% more money out of thin air which is much more effective than after-tax investing or paying doing low-medium interest debt. Also, another benefit of putting away pre-tax money vs after tax is that there is more money to compound with has a serious effect on long term growth.

A married couple right now without children could withdraw almost $40,000 in retirement out of pre-tax accounts before the income breaks them into the 15% bracket and in my opinion is a very generous retirement budget for almost anyone.

My money goes in this order (high 25% bracket single filing)

1) 401k to match
2) Very high interest debt if I had any... (like > 10%)
3) 401k to federal limit & traditional IRA to federal limit
4) Medium interest debt if I had any... (4.5% to 10%)
5) After tax brokerage investments (all the rest of my money)

6) minimum payment on any low interest debt such as my mortgage

[Nick_Miller]

It all depends on what tax bracket you will be in when you no longer work.

You will find that most people here plan to be in the 0-10% brackets when retired and on average are in 25% bracket when working and that is what advice is usually given for. By contributing pre-tax most people are literally pulling 15-25% more money out of thin air which is much more effective than after-tax investing or paying doing low-medium interest debt. Also, another benefit of putting away pre-tax money vs after tax is that there is more money to compound with has a serious effect on long term growth.

A married couple right now without children could withdraw almost $40,000 in retirement out of pre-tax accounts before the income breaks them into the 15% bracket and in my opinion is a very generous retirement budget for almost anyone.

My money goes in this order (high 25% bracket single filing)

1) 401k to match
2) Very high interest debt if I had any... (like > 10%)
3) 401k to federal limit & traditional IRA to federal limit
4) Medium interest debt if I had any... (4.5% to 10%)
5) After tax brokerage investments (all the rest of my money)

6) minimum payment on any low interest debt such as my mortgage

That breakdown was very helpful. Thank you. #1 is done. #2 doesn't apply. $3 - my IRA is maxed out for the year, but her 401k won't be maxed out at this rate. #4 doesn't apply either. #5 we don't have any. #6 is ALL of our debt - over $160K including mortgage, student loans and car.

We don't have any high, or even moderately high, interest debt. Everything, from the student loans to the mortgage to the car, is under 4%. However, I'm just not comfortable limping through making minimum payments on the student loans and keeping them around until I'm 60.  I'll likely pay off debt more aggressively than others here would, but I am taking it to heart to really pump up savings. I've read blog posts by MMM himself that said paying off debt versus investment was a somewhat personal decision and that either is much better than wasting the money on consumer products or entertainment.

I'll be honest and say that we've been very loose with spending over the years, so part of me fears that we'll fall back into that rut and perhaps "waste" money that I could otherwise toss right at debt.

 

[onlykelsey]

Set up direct deposit for your paychecks to an investment account.  Either for a chunk of it, or for all (and make yourself manually transfer what you need monthly to actually spend).

[CmFtns]

It all depends on what tax bracket you will be in when you no longer work.

You will find that most people here plan to be in the 0-10% brackets when retired and on average are in 25% bracket when working and that is what advice is usually given for. By contributing pre-tax most people are literally pulling 15-25% more money out of thin air which is much more effective than after-tax investing or paying doing low-medium interest debt. Also, another benefit of putting away pre-tax money vs after tax is that there is more money to compound with has a serious effect on long term growth.

A married couple right now without children could withdraw almost $40,000 in retirement out of pre-tax accounts before the income breaks them into the 15% bracket and in my opinion is a very generous retirement budget for almost anyone.

My money goes in this order (high 25% bracket single filing)

1) 401k to match
2) Very high interest debt if I had any... (like > 10%)
3) 401k to federal limit & traditional IRA to federal limit
4) Medium interest debt if I had any... (4.5% to 10%)
5) After tax brokerage investments (all the rest of my money)

6) minimum payment on any low interest debt such as my mortgage

That breakdown was very helpful. Thank you. #1 is done. #2 doesn't apply. $3 - my IRA is maxed out for the year, but her 401k won't be maxed out at this rate. #4 doesn't apply either. #5 we don't have any. #6 is ALL of our debt - over $160K including mortgage, student loans and car.

We don't have any high, or even moderately high, interest debt. Everything, from the student loans to the mortgage to the car, is under 4%. However, I'm just not comfortable limping through making minimum payments on the student loans and keeping them around until I'm 60.  I'll likely pay off debt more aggressively than others here would, but I am taking it to heart to really pump up savings. I've read blog posts by MMM himself that said paying off debt versus investment was a somewhat personal decision and that either is much better than wasting the money on consumer products or entertainment.

I'll be honest and say that we've been very loose with spending over the years, so part of me fears that we'll fall back into that rut and perhaps "waste" money that I could otherwise toss right at debt.

Another interesting way that I like to think about low interest debt is that average inflation is around 3% so on average any loan under 3% actually gets cheaper payments as time goes on.

For example Let's say someone started a mortgage 30 years ago. According to SSA.gov the Consumer Price Index was 108.400 in June 1986 and 235.308 in June 2016. That means that their payment became more than twice as affordable over those 30 years. If your debt is at or below the inflation rate it essentially gets cheaper as time goes on in inflation adjusted dollars.

You just have to be disciplined with the goals you are trying to achieve. For some people paying down debt is an emotional victory that helps them reach their goals and gives peace of mind and there's nothing wrong with that approach either... It just might not be the absolute fastest way.

[kitkat]

It all depends on what tax bracket you will be in when you no longer work.

You will find that most people here plan to be in the 0-10% brackets when retired and on average are in 25% bracket when working and that is what advice is usually given for. By contributing pre-tax most people are literally pulling 15-25% more money out of thin air which is much more effective than after-tax investing or paying doing low-medium interest debt. Also, another benefit of putting away pre-tax money vs after tax is that there is more money to compound with has a serious effect on long term growth.

A married couple right now without children could withdraw almost $40,000 in retirement out of pre-tax accounts before the income breaks them into the 15% bracket and in my opinion is a very generous retirement budget for almost anyone.

My money goes in this order (high 25% bracket single filing)

1) 401k to match
2) Very high interest debt if I had any... (like > 10%)
3) 401k to federal limit & traditional IRA to federal limit
4) Medium interest debt if I had any... (4.5% to 10%)
5) After tax brokerage investments (all the rest of my money)

6) minimum payment on any low interest debt such as my mortgage

Apologies to the OP on jumping in here with my own question..

For someone who can only save up to the limits on their 401k+IRA, what are we supposed to live off of between early retirement and age 59.5? I understand the appeal of a Trad IRA when considering tax brackets, but I have been using Roth so that I can have access to my contributions at any time penalty-free.

I also recently discovered that I have the option to use 403b or 457 plans in addition to my pension, and am not sure which to choose. 457 lets me withdraw anytime after I leave my current company (but if you are still working you have to wait until age 70), whereas 403b has more similar withdrawal rules to a 401k (age 59.5) and allows a rollover to an IRA if you leave the company (which can then be slowly rolled over into a Roth depending on how you game the system). I plan to retire (or at least work part time) starting around age 35 (I'm 25 now), so I would have a significant amount of time to cover between retirement and gaining access to 403b or traditional IRA funds.

[boarder42]

many many ways to access your funds

1. pay the penalty which actually isnt as bad as everyone thinks

2. SEP 72t

3. roth IRA conversion ladder.

http://www.madfientist.com/how-to-access-retirement-funds-early/

madfientists latest post on the topic.   all are much better than using taxable.

you would likely use the ladder since you are planning to still work.

[CmFtns]

It all depends on what tax bracket you will be in when you no longer work.

You will find that most people here plan to be in the 0-10% brackets when retired and on average are in 25% bracket when working and that is what advice is usually given for. By contributing pre-tax most people are literally pulling 15-25% more money out of thin air which is much more effective than after-tax investing or paying doing low-medium interest debt. Also, another benefit of putting away pre-tax money vs after tax is that there is more money to compound with has a serious effect on long term growth.

A married couple right now without children could withdraw almost $40,000 in retirement out of pre-tax accounts before the income breaks them into the 15% bracket and in my opinion is a very generous retirement budget for almost anyone.

My money goes in this order (high 25% bracket single filing)

1) 401k to match
2) Very high interest debt if I had any... (like > 10%)
3) 401k to federal limit & traditional IRA to federal limit
4) Medium interest debt if I had any... (4.5% to 10%)
5) After tax brokerage investments (all the rest of my money)

6) minimum payment on any low interest debt such as my mortgage

Apologies to the OP on jumping in here with my own question..

For someone who can only save up to the limits on their 401k+IRA, what are we supposed to live off of between early retirement and age 59.5? I understand the appeal of a Trad IRA when considering tax brackets, but I have been using Roth so that I can have access to my contributions at any time penalty-free.

I also recently discovered that I have the option to use 403b or 457 plans in addition to my pension, and am not sure which to choose. 457 lets me withdraw anytime after I leave my current company (but if you are still working you have to wait until age 70), whereas 403b has more similar withdrawal rules to a 401k (age 59.5) and allows a rollover to an IRA if you leave the company (which can then be slowly rolled over into a Roth depending on how you game the system). I plan to retire (or at least work part time) starting around age 35 (I'm 25 now), so I would have a significant amount of time to cover between retirement and gaining access to 403b or traditional IRA funds.

This is the idea:
-Convert 401k to a Traditional IRA when you leave work
-Slowly convert Traditional IRA to Roth IRA year by year so you can withdraw contributions
(referred to as Roth Conversion Pipeline)

The only caveat is that there is a 5 year waiting period between the time you place money into an IRA and the time when you can withdraw those contributions. You must save enough money to span that 5 year gap before you can start using roth contributions and plan how much money you will want to spend 5 years from the time you make roth conversion.

Relevant Post/Guide:
http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

edit* that mad fientist post boarder42 linked is fantastic... I had not read that yet but makes it very clear different options and pros and cons

[Rewdoalb]

The last 2 posts were good advice, but they still missed the goldmine, which you alluded to. The 457, something many people don't have access to, which is why it isn't discussed as much. It's discussed a lot in the comments section of the linked mad fientist post, so yeah, still read that.

To the OP - it was awesome to see how you and your wife became unified in this pursuit. If she gets more excited than you...all I can say is, run for cover and you started it.  Use your restaurant budget to "treat yo self" over net worth related victories.

[Nick_Miller]

The last 2 posts were good advice, but they still missed the goldmine, which you alluded to. The 457, something many people don't have access to, which is why it isn't discussed as much. It's discussed a lot in the comments section of the linked mad fientist post, so yeah, still read that.

To the OP - it was awesome to see how you and your wife became unified in this pursuit. If she gets more excited than you...all I can say is, run for cover and you started it.  Use your restaurant budget to "treat yo self" over net worth related victories.

Well she won't give up her car any time soon, but she gets a vehicle allowance from her work that will have it paid off in 2.5 years, so I won't begrudge her that. Other than that, I think she will get on board slowly over the coming months. And is the "treat yo self" a reference to Tom and Donna from Parks & Rec?? I loved that show.

[Rewdoalb]

You called it! Yep, it's easier to get on board and get excited when it's clear you are doing something worthy of celebration.

[Bee21]

I think you are doing well. Mathematically speaking, some decisions are better than the other, but I'm personally very debt averse and I vote for paying off those student loans aggressively. It is as big as your mortgage, so that is enough reason to attack it. If everything goes well on the long term you will probably be better off making the investments the others mentioned, but if there is something wrong (illness, job loss) you are better off having as little debt as possible. It is your choice, whatever you are comfortable with. Plus don't forget the freedom factor. It is a wonderful feeling not to have debts because you are not chained to crappy jobs. You will have the freedom of choice and that is priceless ( for me at least).

[boarder42]

I think you are doing well. Mathematically speaking, some decisions are better than the other, but I'm personally very debt averse and I vote for paying off those student loans aggressively. It is as big as your mortgage, so that is enough reason to attack it. If everything goes well on the long term you will probably be better off making the investments the others mentioned, but if there is something wrong (illness, job loss) you are better off having as little debt as possible. It is your choice, whatever you are comfortable with. Plus don't forget the freedom factor. It is a wonderful feeling not to have debts because you are not chained to crappy jobs. You will have the freedom of choice and that is priceless ( for me at least).

You get unchained from crappy jobs faster by keeping low interest debt and investing. If you are paying down your loans like a mortgage. And you only owe 3k dollars and you can't come up with it the bank doesn't care you lose your house. Better to invest and still be able to pay your mortgage or loans in a catastrophic event.

[Bee21]

But are these guys investing? If so, are they investing successfully?

I see this argument over and over again, and I totally agree that well managed investments do better than a low interest debt. You are right about this. If they know what they are doing, have the knowledge and the discipline for investing. If not, they are better off paying off their debt and learn about investing in the meanwhile, so that when they finally have the surplus, they can make good decisions. I's easy to say to a novice to invest because you'll be better off. But how? Into what? Making bad investment decisions would be catastrophic in their financial situation. I have seen that happen and it wasn't pretty.

[boarder42]

That's what this forum is about. Investing money to not work. It's that simple cut your cost of living put your dollars to work. If they don't know what to invest in ask it's called vtsax and then take a nap and wake up a millionaire. Read jlcollins stock series if you want to know why. 

This isn't a Dave Ramsey forum. We're not trying to help the avg American. We're trying to retire by 40 or 30 or 50 or whatever your year is.  If we were just trying to be better than avg it's great but we're not just better than average were borderline the BEST so when we dont pay down debt we instead invest that money not use it to pay for a 40k truck.

Point is don't give someone avg advice give them the best advice if they choose to make the avg decision that's their personal choice for whatever emotional reason.

[Bee21]

That Simple, huh?

[Tuskalusa]

Here's a simple one. Switch you iPhone to Ting wireless.  Then get good at using wifi wherever it it available. I bet you can cut that $70 to $40. I recently did this. Such a no brainer, I was annoyed with myself that I didn't do it sooner.

[Nick_Miller]

That's what this forum is about. Investing money to not work. It's that simple cut your cost of living put your dollars to work. If they don't know what to invest in ask it's called vtsax and then take a nap and wake up a millionaire. Read jlcollins stock series if you want to know why.

I just moved my traditional IRA into VTSAX last week actually. My Roth is not over $10k yet but will be next year, although I'll keep that in a fund with more bonds like the target date fund.

[Nick_Miller]

I think you are doing well. Mathematically speaking, some decisions are better than the other, but I'm personally very debt averse and I vote for paying off those student loans aggressively. It is as big as your mortgage, so that is enough reason to attack it. If everything goes well on the long term you will probably be better off making the investments the others mentioned, but if there is something wrong (illness, job loss) you are better off having as little debt as possible. It is your choice, whatever you are comfortable with. Plus don't forget the freedom factor. It is a wonderful feeling not to have debts because you are not chained to crappy jobs. You will have the freedom of choice and that is priceless ( for me at least).

Don't worry - I am! Nothing gives me more pleasure than making fat debt payments. It gives me a boost and keeps me focused on cutting expenses, which helps us across the board because the cuts are all going to debt repayment and/or investment,  not other things.

[Suit]

I'm not sure anyone has suggested this (if anyone has, sorry to repeat): why not try to refinance your student loans to a lower interest rate? Then the choice to max out retirement accounts before paying off the debt will be an easy one and your payments will go farther to reducing them. I recently refinanced with Earnest and got a 3.5% rate. If you want a referral code that will also get you $200 (and me $200) just let me know.

[Nick_Miller]

Quick update. Here are some changes/developments since I started the thread...

1) We're pumping money into retirement and should have $100K in retirement accounts by Dec. I maxed my Roth, we started a Roth for my wife and should have that maxed soon, and we doubled her 401k contributions (with the intention of revisiting that in January 2017 and perhaps adding another $200/month if cash flow is going well).

2) Daycare is reduced now that the kids are back in school. It's down to $520/month until June 2017. And then my oldest daughter (will be 11.5 then) will probably only do summer camp every other week, so our summer 2017 daycare expenses should be 25% cheaper than this year's.

3) Cranked student loan payments up from $800 to $1000 per month, and will revisit with an eye towards upping that in January 2017 if cash flow is going well.

4) I realized that mortgage will be paid off in 9 years, not 11 as I originally said.

5) The kids' school gets free breakfast and lunch (even though it's a good school, it's a state program thing) so our grocery bill for August is already looking better. For September, I think $600 to $700 is possible.

Things we're keeping: My wife's car, cable (although that might be chucked at some point), blow money (I'm saving some of mine to put back into student loan payments)

I'm tracking our net worth every month and updating in the $100K-$250K Net Worth Gauntlet group and I think it's possible to hit $150K this December, $200K December 2017 and $250K 2018. At that point, the car would be paid off, and hopefully the student loans should be at a <$20 balance (because we will also allocate some bonuses toward them). At that point, I'd feel like we turned a corner.

I'm very grateful to all of you for your help. I hope to stay an active member for a long time here. I tell my friends about MMM but I'm pretty selective about it.

[boarder42]

good work.

general question. 

why do you need daycare for a 10 year old. i was staying at home by then.  and now a days you could buy a wifi camera and put it in your house if you were concerned.

[Nick_Miller]

Eh, mostly because it's her last year of elementary school and her younger sister would still go to the on-site facility in the mornings and afternoons anyway. Adding a bus stop to the mix, waiting for that, still driving the younger one to the same school, etc., isn't worth it and screws up the routine. We're loosening the daycare cord for her come summer, and then when she starts middle school in Aug 2017, the daycare cord will be entirely cut for her.

Trust me, I'm tired of paying daycare. We've probably paid $100K in daycare over the last 10 years. Anyone who says kids aren't expensive is totally nuts.

[sis]

Quick update. Here are some changes/developments since I started the thread...

1) We're pumping money into retirement and should have $100K in retirement accounts by Dec. I maxed my Roth, we started a Roth for my wife and should have that maxed soon, and we doubled her 401k contributions (with the intention of revisiting that in January 2017 and perhaps adding another $200/month if cash flow is going well).

2) Daycare is reduced now that the kids are back in school. It's down to $520/month until June 2017. And then my oldest daughter (will be 11.5 then) will probably only do summer camp every other week, so our summer 2017 daycare expenses should be 25% cheaper than this year's.

3) Cranked student loan payments up from $800 to $1000 per month, and will revisit with an eye towards upping that in January 2017 if cash flow is going well.

4) I realized that mortgage will be paid off in 9 years, not 11 as I originally said.

5) The kids' school gets free breakfast and lunch (even though it's a good school, it's a state program thing) so our grocery bill for August is already looking better. For September, I think $600 to $700 is possible.

Things we're keeping: My wife's car, cable (although that might be chucked at some point), blow money (I'm saving some of mine to put back into student loan payments)

I'm tracking our net worth every month and updating in the $100K-$250K Net Worth Gauntlet group and I think it's possible to hit $150K this December, $200K December 2017 and $250K 2018. At that point, the car would be paid off, and hopefully the student loans should be at a <$20 balance (because we will also allocate some bonuses toward them). At that point, I'd feel like we turned a corner.

I'm very grateful to all of you for your help. I hope to stay an active member for a long time here. I tell my friends about MMM but I'm pretty selective about it.

Keep up the good work!  Cut the cable if you can... it'll be good for your family.  It'll encourage your kids to read more and your family will become more active in general.  You can always get an antenna so that you can still get broadcast channels for free. 

[Nick_Miller]

Since it's been a year, I provided an update in the original post.

You folks are awesome.

[boarder42]

Nick are you correctly prioritizing your debt pay down strategies here.

i see 3 things 1 which likely cant be corrected but 2 which could

1. you put a bunch of money in your house - more than you needed to to get 20% down. i would be willing to bet this rate is lower than the rate on your Student loans and the money would have been better served there.

but you have 2 other debts here which you claim to be "accelerating" pay down on
1. a car - i assume this loan is lower interest than your SL's
2. your SL's i assume this is higher interest than you car.

paying down you car to get it done in 2.5 years isnt a good plan if this money could be used to pay down higher interest debt.

or  vice versa. if the SLs are higher. 

i'd still wager none are high enough that faster pay down makes any sense and currenly you're leaving tax deferred/advantaged monies on the table. 

[Nick_Miller]

Hey @boarder42,

We did roll over most of our equity from our old home into our new one. My wife was more comfortable that way. It was important to her that we not "go backwards" too much on the house. I went along with it, because she has really gotten on board a lot in the last year. The concession to me was the 30-year mortgage, to allow us more room to invest in coming years. So yeah it was a trade off.

The car payments aren't really being "accelerated." That was probably a poor choice of words on my part. We signed a 3-year-note when we bought it fall 2015. That's why it will be paid off in late summer/fall of next year. Student loans are 4.5% and are our highest interest rate debt. It's high enough (interest rate wise and balance wise) for me that I want to pay that down aggressively.

And I really do think we'll at least get close to $18K this year on my wife's 401K. We've been putting up to $2K some months into Roths, so that's a lot of money we can reroute to her 401k in just a month or two. It worked out better this way this year because it took her a while to get accustomed to bumping her 401k up so much. We took babysteps from 5% to 10% to 15%. With each step, it's important for her to see that we're fine each month cash-flow wise.

Hopefully we can start 2018 with her allocating 36% of her pay to 401K and then that will be on auto-pilot for that year. I just think she sees that as a huge chunk of her salary, and it "feels" like she's not bringing home very much money each month considering she works really hard. I keep telling her that's she's really contributing to our family's net worth each time her 401k surges upward.

[boarder42]

Hey @boarder42,

We did roll over most of our equity from our old home into our new one. My wife was more comfortable that way. It was important to her that we not "go backwards" too much on the house. I went along with it, because she has really gotten on board a lot in the last year. The concession to me was the 30-year mortgage, to allow us more room to invest in coming years. So yeah it was a trade off.

The car payments aren't really being "accelerated." That was probably a poor choice of words on my part. We signed a 3-year-note when we bought it fall 2015. That's why it will be paid off in late summer/fall of next year. Student loans are 4.5% and are our highest interest rate debt. It's high enough (interest rate wise and balance wise) for me that I want to pay that down aggressively.

And I really do think we'll at least get close to $18K this year on my wife's 401K. We've been putting up to $2K some months into Roths, so that's a lot of money we can reroute to her 401k in just a month or two. It worked out better this way this year because it took her a while to get accustomed to bumping her 401k up so much. We took babysteps from 5% to 10% to 15%. With each step, it's important for her to see that we're fine each month cash-flow wise.

Hopefully we can start 2018 with her allocating 36% of her pay to 401K and then that will be on auto-pilot for that year. I just think she sees that as a huge chunk of her salary, and it "feels" like she's not bringing home very much money each month considering she works really hard. I keep telling her that's she's really contributing to our family's net worth each time her 401k surges upward.

i had a similar struggle with my wife on 401k contributions. but we keep separate but joint finances in many ways and on the spread sheet where it all gets split up we just showed the increased 401k contribution as a deduction to what she owed to the pot each month and that helped it be viewed in a different way. 

[Nick_Miller]

Hey @boarder42,

We did roll over most of our equity from our old home into our new one. My wife was more comfortable that way. It was important to her that we not "go backwards" too much on the house. I went along with it, because she has really gotten on board a lot in the last year. The concession to me was the 30-year mortgage, to allow us more room to invest in coming years. So yeah it was a trade off.

The car payments aren't really being "accelerated." That was probably a poor choice of words on my part. We signed a 3-year-note when we bought it fall 2015. That's why it will be paid off in late summer/fall of next year. Student loans are 4.5% and are our highest interest rate debt. It's high enough (interest rate wise and balance wise) for me that I want to pay that down aggressively.

And I really do think we'll at least get close to $18K this year on my wife's 401K. We've been putting up to $2K some months into Roths, so that's a lot of money we can reroute to her 401k in just a month or two. It worked out better this way this year because it took her a while to get accustomed to bumping her 401k up so much. We took babysteps from 5% to 10% to 15%. With each step, it's important for her to see that we're fine each month cash-flow wise.

Hopefully we can start 2018 with her allocating 36% of her pay to 401K and then that will be on auto-pilot for that year. I just think she sees that as a huge chunk of her salary, and it "feels" like she's not bringing home very much money each month considering she works really hard. I keep telling her that's she's really contributing to our family's net worth each time her 401k surges upward.

i had a similar struggle with my wife on 401k contributions. but we keep separate but joint finances in many ways and on the spread sheet where it all gets split up we just showed the increased 401k contribution as a deduction to what she owed to the pot each month and that helped it be viewed in a different way.

Hey, whatever works! People view things in different ways and I've learned it's important to accept the differences (especially with our spouses!) and try to find a joint path to our destination, even if it's not quite as "optimal" as I'd like it to be. It sounds like you're doing great though - I'm jealous that you figured this out so young.

[boarder42]

there was no MMM when you were my age.

[LifeHappens]

To quote your namesake, "I'd give you a hug, but my shirt smells pretty weird today."

Great progress, Nick. It's nice to see your update.

[CmFtns]

it's awesome to see a thread I totally forgot about pop back up to top and then look at long term progress like this.

Nice job, keep following the good path!

[wanderin1]

Monthly Budget
Take home
$3600 (me) (no benefits - I work for a small office)
. . . .
A word about my bonuses. They vary WILDLY! Some months I get no bonus at all. Most months are between $500 and $1000. But some are big. I have a bonus coming up next month that should be $7000 net. .

Now that you’ve got your expenses, debt reduction and savings under better control, maybe it’s time to look at reliably increasing income via your bonuses. Your current attitude almost seems to be that they're out of your control. How about taking some time to create a plan for reliably boosting to bonuses to “level X”?  For example, if you’re a small business attorney and the bonuses come from work you bring into the firm, develop a strategy for reliably bringing in clients. (Depending on your skills and personal preferences, that could range from giving talks for small business groups, to networking with small business CPA’s, to writing articles that get you local recognition, etc.)

If you could get your bonuses up to $4,000 a month, that would more than double your base salary. Think how fast you could pay down that student loan! And boost your savings rate! And the beauty of this idea is that 1)you can design it so that it has minimum impact on your family time, and 2) it supports your efforts to be the leader in securing your family’s financial future. 

If you are comfortable providing added info about what exactly the bonuses are for, I’ll bet you can lots of good ideas here on how to improve the numbers.

[Nick_Miller]

@LifeHappens, thanks for your kind words. Now if you'll excuse me, I need to go work out and listen to Huey Lewis.

@CmTns, thanks! I had looked at my profile recently and I couldn't believe it had been a year. I'd like to see more updates from posters because sometimes I wonder how folks are doing after explaining their situation/goals/etc. I guess that's what the Journals are for, but I just don't have time to poke around there.

@Wanderin1, No they're not out of my control. Basically I need to bring in a certain $ in fees (let's call that C) each month (we do all contingency work). I get 20% of every dollar over C that I bring in each month. Now honestly if I come up short a little on a given month, my boss doesn't hold it against me or dock me or whatever. So basically it's better for me to have a slowish month and then a stronger month, and then repeat, but you know the nature of the business is that sometimes cases settle quickly and others drag out. A lot of that is outside my control.

To hit earn a $4K raise, I'd have to bring in $20K extra in fees that month, and frankly that would be a hell of a month. I only have 2 support staff that work for me (pretty low ratio in PI work) and they can only crank out so much work without giving OT. But yes, I think you're right that I need to prioritize bonuses. AND for May I did get a $2000 bonus, payable next Friday, that will pay for our June vacation.

But there is also the matter of my 'side job," which is my growing writing career. I am working on a sequel for my book and trying DESPERATELY to get it done in the next 4-6 months. Nothing is ever guaranteed, but I strongly anticipate that it will earn me at least as much as part 1 did (over $15,000 now to date, and still bringing in $400-$500 per month, and it's passive revenue forever with royalties) so I am pulling myself in two different directions. Bonus are great. Royalties are great. I have so much opportunity to make money in the next 12 months, more than I've ever made before. It's just that I only have so much time, and I refuse to ignore my wife and kids for the rest of the year.

It's still a nice problem to have; I realize that.

[Nick_Miller]

I just posted my yearly update in the OP! Lots of progress since I've been on this site!

[mudstache]

I wasn't around when this got started, but looks like you're making tons of progress!  Congratulations!

What's your reasoning on maxing out your Roth before maxing out your 401k?  Sorry if you answered that somewhere in all the replies...I just jumped to the end. :)  It seems like maxing your tax-advantaged space would be more advantageous, but I admit that I don't know all the tricks yet.

[Tyson]

Nice work!  Now the fun really starts - watching the net worth grow at an accelerated rate! 

[Nick_Miller]

I wasn't around when this got started, but looks like you're making tons of progress!  Congratulations!

What's your reasoning on maxing out your Roth before maxing out your 401k?  Sorry if you answered that somewhere in all the replies...I just jumped to the end. :)  It seems like maxing your tax-advantaged space would be more advantageous, but I admit that I don't know all the tricks yet.

Next year, we'll likely focus on the 401ks first, especially so we can get our AGI down and under the Roth IRA income cap to make sure we're eligible for our Roth IRAs in the first place!

But until like 3 weeks ago, I had no 401k, and so my IRA was all I had, and so I made sure to max it out. My wife did have a 401k, but she had a psychological thing about having too much stuff taken out of her paycheck, being too cash poor, etc., and so it was baby steps. I understand it; you work hard 40+ hours per week and you want to see some monetary reward on payday.

But she has come a long way, and she realizes that the 401k money is helping to build our future. (It also helps that we have plenty of cash on hand with bonuses and extra income streams)

[Nick_Miller]

Nice work!  Now the fun really starts - watching the net worth grow at an accelerated rate!

I hope you're right!! Right now, it's all us pouring money into investments. I had read a Money magazine article recently that discussed the point when your investments earn more than you contribute to them. I'd love to get to that point, but I don't think the market is going to cooperate for a good while.

[Tyson]

Nice work!  Now the fun really starts - watching the net worth grow at an accelerated rate!

I hope you're right!! Right now, it's all us pouring money into investments. I had read a Money magazine article recently that discussed the point when your investments earn more than you contribute to them. I'd love to get to that point, but I don't think the market is going to cooperate for a good while.

That's a cool point, but an even cooler point (for me) was when my net worth became higher than my mortgage.  Then I realized I could pay of the mortgage IN CASH TODAY if I wanted to.  I mean there's obviously constraints re: taxes and penalties, but you get my drift.