Stepping Up the Savings (First Post)

[401Killer]

New MMM member and first post!

After being introduced to MMM about 6 months ago I have stepped up my savings badassity. I have been saving a bit more than what would be considered average for most professionals around me but didn't really know how much you can actually push it. I've kept my home life fairly simple and have only purchased major wants after long periods of justification. I had my moments of weakness and continue to keep myself in check but my income allowed me to spend and never lived even close to paycheck to paycheck. Over the last 10 years I have gone from adding $100 extra a month on my house payment to $300 and $400 extra. In the last year or so after being introduced to MMM it is now up to $919.64 extra a month for a total of $2,000. In the last 3 months I have dropped an extra $6000 on the house from the emergency fund as well. I have raised my 401K from around 8% to 12% in the last few months and fully plan on raising that number as much as I can. Over the years I have taught myself to be excited over watching my house payment loan drop and my savings to raise.

In the last 1 year:
Dropped cable bill ~$80/month
Dropped phone bill $20/month
Dopped house payment from $1450/mo @ 6.125 to $1080/mo at 2.99%
Dropped $15/month on credit reporting services.
Paid off $350/month car payment in one shot with $5000 payoff.
Installed low water useage shower fixtures & turned down water heater temp.
Installed ventless, no electricity used natural gas heater last year. (Furnace didn't run once this year).
Replaced all light bulbs with low power CFL's.

$16,000 - Emergency Fund
$60,000 - Left on my house as principle. House is worth about $95,000 these days.
$18,000 - Toy Car that is paid off and worth roughly $18,000.
$80,000 - Amount in several 401K accounts.
$0          - Credit Card debt (Pay them off several times a month).
$260/mo- Truck lease payment.

I am very interested in learning more about Vanguard accounts (Already registered) as I get closer to paying off the house. I know I could earn more by investing my extra house payment money but I really like the other major advantages to having a house paid off at 38(35 now). I'm 100% positive that once my house is paid off my 401K will be maxed and that other investment accounts will need to be made like Vanguard. I have struggled with the above "toy car" and its value because I adore driving it but I realize what dropping $18,000 on my house principle represents as far as time paying the house off.

I thank you all for the stories and content in the forums, as you have all had impacts on my, and my future wife(Ms. MM in training) motivation.

[samburger]

Welcome! It looks like you've made some great progress here.

If you're interested in learning more about index funds/Vanguard, check out Jim Collins' series if you haven't already: http://jlcollinsnh.com/stock-series/

[Vorpal]

You're doing a fantastic job! The only two things I can suggest would be to max your 401k and some form of IRA before putting extra on the house, because that's a really low interest rate.

I was just about to make that same comment about maxing your 401(k). I understand the argument that having a house paid off in 3 years is a huge psychological boon, but your rational brain needs to win out here. The math is just too heavily in favor of maxing out 401(k) contributions before paying off a house with a really good interest rate and tax advantages on the interest you do pay.

[401Killer]

You're doing a fantastic job! The only two things I can suggest would be to max your 401k and some form of IRA before putting extra on the house, because that's a really low interest rate.

I was just about to make that same comment about maxing your 401(k). I understand the argument that having a house paid off in 3 years is a huge psychological boon, but your rational brain needs to win out here. The math is just too heavily in favor of maxing out 401(k) contributions before paying off a house with a really good interest rate and tax advantages on the interest you do pay.

I guess what I battle with on this is the overall general risk of 401k and investing coupled with my 401k for the year has only earned like 1.5% so far. Does the gains generally go up over the course of a year with 401k? Because since the begining of the year they have not gained much to speak of.

I feel like if I even used half of the extra $919.64 that I'm adding to my house payment, its at risk of being lost like so many have had happen a few years ago. But if I pay my house off that bad boy is mine and nobody can take that away. I get the overall math is greater, especially with the tax incentives let alone any interest gains but its all gambling still.

Should I worry this much about loosing half of my 401k like so many other have in the past?

[FrugalSpendthrift]

I was just about to make that same comment about maxing your 401(k). I understand the argument that having a house paid off in 3 years is a huge psychological boon, but your rational brain needs to win out here. The math is just too heavily in favor of maxing out 401(k) contributions before paying off a house with a really good interest rate and tax advantages on the interest you do pay.

I agree and here's another perspective on it.  If you choose to make extra principal payments on the mortgage instead of maxing out the 401k, then you are electing to pay more in taxes then you need to.  Take the 401k tax deferral!  The longer the money is in there, the bigger that benefit becomes.

[401Killer]

Thats going to take some mental work on me but I'll get there. I will have to figure out how much cash it saves me tax wise and motovation to split it more. It would take about 20% to reach the 17.5k limit on just my base pay. I make about another $10k in light overtime and stuff.

I really just need to sell that car, would drop the house to a bit over $40k and that aint shit. Plus it would save me another $115 a mo in insurance.

Argh! So tough to keep thinking questioning that damn car.

[George_PA]

Great work so far.  Try to get rid of that $260/mo truck lease payment if there is a way (I never a had a lease in my life so I dunno how it works, read the fine print and see if there is an escape clause somewhere), that $260/mo is money that could be going towards paying down your mortgage.  If you need a get around town, get a bike and bike trailer for most of your trips, and a cheap junky car off craigslist for 3-5k.  Once you have your house paid off and are debt free, you can upgrade your vehicle by saving up the full amount and paying cash for it. 

[401Killer]

Well... I took the Mustache by the horns and raised my 401k from 12% to 20%!!!!!!!!!!!!!!!!!!!!!

With the rather large emergeny savings I have I'll see how this goes while still putting my extra $919.64 on the house payment.

[samburger]

Try not be discouraged by the crappy gains so far this year (my 401k gains are a big fat 0 for the year right now…!). The market always goes up in the long term, even if it's ugly in the short term.

[401Killer]

Try not be discouraged by the crappy gains so far this year (my 401k gains are a big fat 0 for the year right now…!). The market always goes up in the long term, even if it's ugly in the short term.

I talked with a fellow MMM friend at work last night who is a bigtime handlebar and explained what he has learned about the swinging markets. He basically explained the same thing about the swings and calmed my nerves a bit. I like that I'm going to try and continue killing the house for now with it at 20%. It may not actually even eat away the emergency fund due to how much I can save as it is, I hope to just stabilize it.

[rusty]

Remember, it's not the 10% you lose this year by not contributing to a 401k, but the 40th year when your amount is much large and you make 5-10% on that money.

We tend to think it's the amount we make this year is what we are foregoing.  It's actually the last years that we are cutting off.  If a 20 year old is investing the $2k per year and making 10% ($200).  It's the 30th year when the balance could be $1,000,000 and the return could be 5-10% of that number.  By waiting on the 401k, you are possible losing that return on a bigger amount later on.

Either way, you are heading the right direction.  Congrats on realizing it so soon in your life.
R

[HairyUpperLip]

Nice man! good job to just take the plunge and do it.

I'm waiting to figure out how aggressive I can go on my 401k. I have to wait two months before I can set it up. :-/