Author Topic: Newly Married - Next Steps  (Read 6800 times)

Cessna152

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Newly Married - Next Steps
« on: July 20, 2015, 11:57:11 AM »
Hello all,

Looking to get more active in the forums here. I've followed (mostly) silently for the first half of the year. Big reason for this is because I was learning, but also because I had a clear path as to what I needed to do. That's all changing next month.

I'm newly married (March 2015). My wife is 20, I am 22. Childhood sweethearts & we're not apart of some weird cult. Just a neat story.

I bring in $93k annually after bonuses. First half of the year included paying off debts (~$13k), getting a 6m of expenses saved, paying for a wedding out of pocket, and paying for the necessary upgrades/renovations we undertook when I purchased my home at the beginning of the year.

What do I do next?

Financial situation:

Savings
$13k in a high yield savings (.9% APY) - liquid rainy day fund
$17k in 401k (Company matching 100% up to 4% - have been investing 6% for the last year)

Income
$3990/m Net
$11k/yr - estimated 2015 side income off a contract business I run
SO has new job with very variable income that we have not successfully projected yet

Outgo
$884.14 Mortgage
$500 Giving
$400 Food/Groceries
$250 Gas
$100 Electricity
$60 Water
$220 Car Insurance
$200 Entertainment (broad category, pretty much all of it can be marked as a business expense against my contract work on my taxes)
$2614.14/m

Food and Gas hardly ever go to this level, I just keep that much in my budget and roll it over every month. Whatever the difference has been every month has been getting moved to savings.

I'm thinking my game plan should be something along the lines of:
4% to 401K (this will raise my $3990 net income)
Open and max out Traditional IRA for myself and my wife

That will probably be all the stash I can make happen this year - to which I can look at creating a plan for next year. Are these good next steps?

PowerMustache

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Re: Newly Married - Next Steps
« Reply #1 on: July 20, 2015, 12:06:51 PM »
Definitely open the IRA, that's a great next step and if that's all you can manage this year, then do it. The next priority would be to put as much as possible into the 401k beyond your 4% employer match. Even beyond the employer match level, tax benefits of 401k are huge. I would put any extra variable income from your SO's job or anything you save from the food and gas budgets into the 401k.

swick

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Re: Newly Married - Next Steps
« Reply #2 on: July 20, 2015, 12:09:36 PM »
Welcome to the forums and congrats on the marriage! I'll leave the budge for other people to comment on.

 Since you are newly married, I would think part of your next steps should be making sure you have a clear foundation and goals for how you want to build your life and what you want to make happen.  Are you both interested and on board with FIRE? What does your ideal life look like? What concrete steps do you want to take over the next month/year/two years/five years? If you are both interested in early retirement, what does that actually look like for you? What do you anticipate your needs will be? How much money will you need to make that happen? What big expenses do you have coming up and how much will you have to put aside per month so you don't have any nasty surprises? Does your spending match your goals/ideals/morals? How do you decide together on spending money, what is your process? What is your policy for helping out or loaning money to family?

If you can figure all this out early on it will make you a stronger team and significantly reduce the chance for miscommunication/resentment and money issues.

Cessna152

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Re: Newly Married - Next Steps
« Reply #3 on: July 20, 2015, 12:58:13 PM »
Congrats on the marriage! (We married young too. Best decision ever.)

Does your wife bring in any income, or will she in the future? Are you merging your finances?

Thank you, thank you! She does bring in income, but she works contract as a wedding planner. She's only been doing it for the last year and with how the business in run, obviously there's a cycle between people booking the venue, paying, and executing the wedding. So we are still figuring out how the venue is going to pay her. It also means she has high and low seasons and I do not have enough data to project that for her yet. I will be able to have a better grasp on it next calendar year.

She has another contract job that will bring in a few hundred a month that follows the school calendar. So that should pick up in August. All her income will go directly into whatever our stash goal is, sans her allowance.

Our finances are merged. She doesn't have to worry about any of the expenses and is happy with just an 'allowance' of $100 every month. This is accounted for in the above budget.

Welcome to the forums and congrats on the marriage! I'll leave the budge for other people to comment on.

 Since you are newly married, I would think part of your next steps should be making sure you have a clear foundation and goals for how you want to build your life and what you want to make happen.  Are you both interested and on board with FIRE? What does your ideal life look like? What concrete steps do you want to take over the next month/year/two years/five years? If you are both interested in early retirement, what does that actually look like for you? What do you anticipate your needs will be? How much money will you need to make that happen? What big expenses do you have coming up and how much will you have to put aside per month so you don't have any nasty surprises? Does your spending match your goals/ideals/morals? How do you decide together on spending money, what is your process? What is your policy for helping out or loaning money to family?

If you can figure all this out early on it will make you a stronger team and significantly reduce the chance for miscommunication/resentment and money issues.

You better believe this was discussed ad nauseam prior to getting married. She is very low maintenance and a fantastic financial partner. She's probably a bigger saver than I am, and thats saying a good bit. See above about the allowance, she's good with putting all her money towards goals and just getting an allowance; trusting me to put us on the right FIRE track.

My original 3 year goal that we last discussed was having our $96k mortgage paid off. However, at 3% interest I've been reading that it's probably best for FIRE to build our stash elsewhere first. I'm just trying to figure out where best to put that stash, start seeing what numbers those produce to see what changes need to be made for a 10-yr FIRE.

Cessna152

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Re: Newly Married - Next Steps
« Reply #4 on: July 20, 2015, 01:01:43 PM »
Definitely open the IRA, that's a great next step and if that's all you can manage this year, then do it. The next priority would be to put as much as possible into the 401k beyond your 4% employer match. Even beyond the employer match level, tax benefits of 401k are huge. I would put any extra variable income from your SO's job or anything you save from the food and gas budgets into the 401k.

Thanks for this encouragement!

I was wondering what the next phase looks like - I am very goal oriented. At what point do you stop investing in the retirement accounts and start looking at the short-med-term investments for FIRE? From my understanding, I can withdraw in my 50s on the above retirement accounts. I know there are some tricks with switching from traditional -> roth once I retire. When do I need to start thinking about what is going to pay for me to get through the remainder of my 30's and my 40's?

decembeir

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Re: Newly Married - Next Steps
« Reply #5 on: July 20, 2015, 01:08:20 PM »
Here is a post with information on "How to withdraw funds from your IRA and 401k without penalty before age 59.5"http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/


Congrats on your marriage!

Cessna152

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Re: Newly Married - Next Steps
« Reply #6 on: July 20, 2015, 01:17:23 PM »
Here is a post with information on "How to withdraw funds from your IRA and 401k without penalty before age 59.5"http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/


Congrats on your marriage!

Super helpful. So it would be best to max out all my pretax even for FIRE.
That would be 18000 (401k) + 5500 (IRA Mine) + 5500 (IRA Wife) = $29k/yr
This could work well for the amount of income I'm expecting, if nothing else changes. I need to do some projections to see how that plays out with early FI.

MDM

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Re: Newly Married - Next Steps
« Reply #7 on: July 20, 2015, 01:24:51 PM »
I bring in $93k annually after bonuses.

Income
$3990/m Net

I'm thinking my game plan should be something along the lines of:
4% to 401K (this will raise my $3990 net income)
Open and max out Traditional IRA for myself and my wife

That will probably be all the stash I can make happen this year - to which I can look at creating a plan for next year. Are these good next steps?

Looks good at first glance.  Looking a little deeper, $93K/yr = $7,750/mo.  Total taxes might be ~$1600/mo (note: actual tax liability, not necessarily what is being withheld), and the 401k is ~$465/mo (if it comes out of the bonus as well as the base).  That puts you at $5,685/mo "net" - without including side income or wife's income.

What causes the difference between $5,685/mo and $3,990/mo?

Cessna152

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Re: Newly Married - Next Steps
« Reply #8 on: July 20, 2015, 01:36:06 PM »
I bring in $93k annually after bonuses.

Income
$3990/m Net

I'm thinking my game plan should be something along the lines of:
4% to 401K (this will raise my $3990 net income)
Open and max out Traditional IRA for myself and my wife

That will probably be all the stash I can make happen this year - to which I can look at creating a plan for next year. Are these good next steps?

Looks good at first glance.  Looking a little deeper, $93K/yr = $7,750/mo.  Total taxes might be ~$1600/mo (note: actual tax liability, not necessarily what is being withheld), and the 401k is ~$465/mo (if it comes out of the bonus as well as the base).  That puts you at $5,685/mo "net" - without including side income or wife's income.

What causes the difference between $5,685/mo and $3,990/mo?

Bonus is paid end of year so I get paid off $83k. My monthly budget amount does not account for the bonus, which will just go to whatever financial goal I'm working on. Additionally, I have a draft that $100 hits my savings account every paycheck ($200/m). This will probably change now that we have met our savings goal.

Tax breaks down as follows:
Gross - 6916.66

Fed Inc 983.88
SS 409.84
Medicare 95.86
State Inc 344.38

401k 585.64
Dental/Medical/Vision 306.20

KCM5

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Re: Newly Married - Next Steps
« Reply #9 on: July 20, 2015, 01:50:14 PM »
Here is a post with information on "How to withdraw funds from your IRA and 401k without penalty before age 59.5"http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/


Congrats on your marriage!

Super helpful. So it would be best to max out all my pretax even for FIRE.
That would be 18000 (401k) + 5500 (IRA Mine) + 5500 (IRA Wife) = $29k/yr
This could work well for the amount of income I'm expecting, if nothing else changes. I need to do some projections to see how that plays out with early FI.

Add another $18k for the individual 401k that serpentstooth was talking about.

MDM

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Re: Newly Married - Next Steps
« Reply #10 on: July 20, 2015, 01:51:35 PM »
Bonus is paid end of year so I get paid off $83k. My monthly budget amount does not account for the bonus, which will just go to whatever financial goal I'm working on. Additionally, I have a draft that $100 hits my savings account every paycheck ($200/m). This will probably change now that we have met our savings goal.

Tax breaks down as follows:
Gross - 6916.66

Fed Inc 983.88
SS 409.84
Medicare 95.86
State Inc 344.38

401k 585.64
Dental/Medical/Vision 306.20

You are still withholding at single rates, probably with 0 or 1 exemption on your W-4, correct?

Some overwithholding is ok if you need to account for no withholding from the side and spouse income.  Otherwise, time to stop giving the IRS an interest-free loan.  Take a look at http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/.  You can follow links in there to Taxcaster and/or the case study spreadsheet to estimate your 2015 taxes as MFJ.

Cessna152

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Re: Newly Married - Next Steps
« Reply #11 on: July 20, 2015, 01:58:08 PM »
Bonus is paid end of year so I get paid off $83k. My monthly budget amount does not account for the bonus, which will just go to whatever financial goal I'm working on. Additionally, I have a draft that $100 hits my savings account every paycheck ($200/m). This will probably change now that we have met our savings goal.

Tax breaks down as follows:
Gross - 6916.66

Fed Inc 983.88
SS 409.84
Medicare 95.86
State Inc 344.38

401k 585.64
Dental/Medical/Vision 306.20

You are still withholding at single rates, probably with 0 or 1 exemption on your W-4, correct?

Some overwithholding is ok if you need to account for no withholding from the side and spouse income.  Otherwise, time to stop giving the IRS an interest-free loan.  Take a look at http://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/.  You can follow links in there to Taxcaster and/or the case study spreadsheet to estimate your 2015 taxes as MFJ.

That is correct. And it is due to no withholdings on side income and the wife's contract work. I have owed on taxes every year so I do an OK job at keeping that interest-free loan at bay, but it will be helpful to review the links you mentioned. Thanks for sharing the resource.

Cessna152

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Re: Newly Married - Next Steps
« Reply #12 on: July 20, 2015, 01:59:46 PM »

Super helpful. So it would be best to max out all my pretax even for FIRE.
That would be 18000 (401k) + 5500 (IRA Mine) + 5500 (IRA Wife) = $29k/yr
This could work well for the amount of income I'm expecting, if nothing else changes. I need to do some projections to see how that plays out with early FI.

Add another $18k for the individual 401k that serpentstooth was talking about.

I may need to open up another thread on how the Solo 401k will effect us/if I should be maxing her Solo 401k out vs her IRA first, but this is definitely a new concept to me and I'll be looking into it. Thank you!

tj

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Re: Newly Married - Next Steps
« Reply #13 on: July 20, 2015, 02:51:23 PM »
Quote
& we're not apart of some weird cult.

Other than the MMM one, of course? ;-)

Cessna152

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Re: Newly Married - Next Steps
« Reply #14 on: July 20, 2015, 03:01:14 PM »
Quote
& we're not apart of some weird cult.

Other than the MMM one, of course? ;-)

Haha! Of course!!

expectopatronum

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Re: Newly Married - Next Steps
« Reply #15 on: July 20, 2015, 04:15:33 PM »
Congrats on the wedding! What a sweet story. We are newlyweds too, but we're 24 and 28.

Might it be time to shop for car insurance? $220 a month? This used to be about what we paid separately. Once we got married (that apparently gives you a discount!), we combined policies and switched him to my company and our rates dropped by almost $100 a month.

You guys look like you're off to a great start though and others gave some good tax advice. Personally, I'd put the money in a Roth if we were only being taxed on $93K (minus the 6% towards 401k) because I'm suspicious like that, but that's splitting hairs.

Our strategy is to budget assuming we only have 2 of DH's biweekly paychecks per month to live on. We do not include the bonus or the 2 "extra" paychecks in the household budget so it seems more like a windfall (yay, where is this extra paycheck going). I think it helps us curb lifestyle inflation a bit.

Cessna152

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Re: Newly Married - Next Steps
« Reply #16 on: July 20, 2015, 04:22:17 PM »
Congrats on the wedding! What a sweet story. We are newlyweds too, but we're 24 and 28.

Might it be time to shop for car insurance? $220 a month? This used to be about what we paid separately. Once we got married (that apparently gives you a discount!), we combined policies and switched him to my company and our rates dropped by almost $100 a month.

You guys look like you're off to a great start though and others gave some good tax advice. Personally, I'd put the money in a Roth if we were only being taxed on $93K (minus the 6% towards 401k) because I'm suspicious like that, but that's splitting hairs.

Our strategy is to budget assuming we only have 2 of DH's biweekly paychecks per month to live on. We do not include the bonus or the 2 "extra" paychecks in the household budget so it seems more like a windfall (yay, where is this extra paycheck going). I think it helps us curb lifestyle inflation a bit.

Thank you! Congrats to you as well.

I actually just changed insurance over and that's a large savings from what I was paying. I have a high-end car (paid for and owned for many years before frugality kicked in) so that raises the cost a little. She has her own vehicle. I also own a motorcycle so that's 3 units covered under the $220. Apparently rates drop at 23, so we're looking forward to that savings.

Agreed on the windfalls. That's how I treat her income as well as how I've treated my freelance income.

Cessna152

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Re: Newly Married - Next Steps
« Reply #17 on: July 20, 2015, 04:34:03 PM »
Congratulations on both the wedding and being proactive with planning and saving. You are doing great. Max out a pretax IRA and remember to constantly optimize your savings.
http://www.mrmoneymustache.com/2013/05/15/the-principle-of-constant-optimization/
You are young, there's a huge advantage in being aggressive savers now. And nurture your marriage, it's the biggest investment you'll ever make.

Love that bit in bold.

And I hear you on optimization. I reflect on that principle often, even to the point where I put my sweet caring motorcycle on craigslist the other week. And putting my love of airplanes on hold. Small sacrifices now.

Anyone aware of any issues with investing MORE than what my wife makes into an IRA for her? If she for some reason doesn't bring in $5500 this year, would there be an issue with it being fully funded? We are married, filing jointly.

MDM

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Re: Newly Married - Next Steps
« Reply #18 on: July 20, 2015, 04:37:28 PM »
Anyone aware of any issues with investing MORE than what my wife makes into an IRA for her? If she for some reason doesn't bring in $5500 this year, would there be an issue with it being fully funded? We are married, filing jointly.
No problem.  Google   spousal ira   .

Rufus.T.Firefly

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Re: Newly Married - Next Steps
« Reply #19 on: July 20, 2015, 08:35:56 PM »
My wife and I will have been married for 4 years next month. The best thing we ever did, so far, was agree to have a monthly financial meeting.

We do this the first Saturday of every month. To avoid the feeling of drudgery, we turn it into a date. We go out for coffee and baked good at the local coffee shop or make a great homemade breakfast. Then we break out the laptop and take a few minutes to review Mint expenses. This is also the dedicated time to discuss financial choices for the future. Doing this has created a great routine that we look forward to. Over time, the length of these meetings have dropped significantly and a lot of the time we don't have much to discuss, but we still look forward to it because it is fun.

In looking around, so many couples avoid discussing finances and drift apart in their goals, resulting in lifestyle creep especially if one spouse tends to be more spendy (and one usually is). In my job I routinely work with folks in the 50s and 60s. By this point, their marriage relationships are so separated from finances that a spouse will confess to me (unprompted) they don't tell their other half about all the money in the bank and essentially keep them on an allowance. This seems so tragic.

Always keep communicating!

Cessna152

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Re: Newly Married - Next Steps
« Reply #20 on: July 21, 2015, 10:12:50 AM »
Here is a post with information on "How to withdraw funds from your IRA and 401k without penalty before age 59.5"http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/


Congrats on your marriage!

Super helpful. So it would be best to max out all my pretax even for FIRE.
That would be 18000 (401k) + 5500 (IRA Mine) + 5500 (IRA Wife) = $29k/yr
This could work well for the amount of income I'm expecting, if nothing else changes. I need to do some projections to see how that plays out with early FI.

Add another $18k for the individual 401k that serpentstooth was talking about.

Should I be considering focusing on an HSA before any of these pretax accounts?

neo von retorch

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Re: Newly Married - Next Steps
« Reply #21 on: July 21, 2015, 10:32:23 AM »
Congratulations on starting off on the right foot in your marriage and financial future, and at such a young age! Also commenting to read through this more later, as I am in a somewhat similar situation, but almost 15 years older (getting married next month.) Looking forward to updates.

MDM

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Re: Newly Married - Next Steps
« Reply #22 on: July 21, 2015, 10:38:24 AM »
Here is a post with information on "How to withdraw funds from your IRA and 401k without penalty before age 59.5"http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/


Congrats on your marriage!

Super helpful. So it would be best to max out all my pretax even for FIRE.
That would be 18000 (401k) + 5500 (IRA Mine) + 5500 (IRA Wife) = $29k/yr
This could work well for the amount of income I'm expecting, if nothing else changes. I need to do some projections to see how that plays out with early FI.

Add another $18k for the individual 401k that serpentstooth was talking about.

Should I be considering focusing on an HSA before any of these pretax accounts?

One "rule of thumb" (i.e., generally good but may not fit 100% of situations) set:
0. Establish an emergency fund to your satisfaction.
1. Contribute to 401k up to any company match
2. Pay off any debts over 7%
3. Max HSA, then Roth or Traditional IRA based on income level
4. Max out 401k
5. Pay off any debts over 5%
6. Invest in taxable account with any extra.


justajane

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Re: Newly Married - Next Steps
« Reply #23 on: July 21, 2015, 11:01:58 AM »
Here is a post with information on "How to withdraw funds from your IRA and 401k without penalty before age 59.5"http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/


Congrats on your marriage!

Super helpful. So it would be best to max out all my pretax even for FIRE.
That would be 18000 (401k) + 5500 (IRA Mine) + 5500 (IRA Wife) = $29k/yr
This could work well for the amount of income I'm expecting, if nothing else changes. I need to do some projections to see how that plays out with early FI.

Add another $18k for the individual 401k that serpentstooth was talking about.

Should I be considering focusing on an HSA before any of these pretax accounts?

One "rule of thumb" (i.e., generally good but may not fit 100% of situations) set:
0. Establish an emergency fund to your satisfaction.
1. Contribute to 401k up to any company match
2. Pay off any debts over 7%
3. Max HSA, then Roth or Traditional IRA based on income level
4. Max out 401k
5. Pay off any debts over 5%
6. Invest in taxable account with any extra.

Love this breakdown. With this, you've helped more than the OP, so thanks! Can I ask, though, why you privilege the IRAs over the 401Ks? Is it the higher fees?

MDM

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Re: Newly Married - Next Steps
« Reply #24 on: July 21, 2015, 11:30:16 AM »
Love this breakdown. With this, you've helped more than the OP, so thanks! Can I ask, though, why you privilege the IRAs over the 401Ks? Is it the higher fees?
Yes, exactly.  At least, usually an IRA will have lower fees but not always.  The federal TSP is a notable exception.  Probably would be good to make that assumption explicit, thanks.

Other considerations include whether one wants to do backdoor Roths, in which case having nothing in a tIRA is useful.