| Our budget and savings. Guidance requested. |
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Kiloboy
First Time Poster
Cash: $ 0.25
Posts: 1
Joined: 06 Apr 2011
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| Our budget and savings. Guidance requested. |
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Hello All,
I am 24 and my wife is 23. We curently make 8,650 a month after taxes (we hope/plan on making 10,000/month in 1 year) and we spend 3,900/month on all expenses and toys and fun.
We're left with 4,750 at the end of the month, not including bonuses I get about 6 months out of the year (1,500) or random stuff.
18,000 - emergency fund
28,500 - savings/checking - me
3,000 - retirement - me
15,500 - savings/checking - wife
7,000 - retirement - wife
19k Car loan
149k House
No other debt
I need some guidance on what to do with the money we don't use at the end of the month. I am thinking we put 5k each into 2 Roth IRAs, then put the rest into different Higher Risk S&P 500 Index funds. We leave 1k in each of our savings accounts too. i also want to put the 18k into a CD.
Keep in mind that my employer will put an additional 10% of my salary each year into a 401k, without me even matching. starting in 6 months.
So bottom line is, I did not grow up with this kind of money and it may not be a lot for some but it's a lot for me. I'm just not used to having so much extra money to invest with. Should i invest all the 4,750 in funds and stuff like that because my 5k limit is reached and we already have a 6 month emergency fund?
Goal? Be rich enough to take our parents in when they'e old, pay for kids college, maybe start a business in the future.
++ One more thing, I don't really understand the 5k limit on IRAs and the 16.5k limit on retirement funds as whole? So...5k into IRA the rest into 401k? I don't understand this 16.5k limit.
Thank you all in advance and sorry for so much text
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Wed Apr 06, 2011 5:45 pm |
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littleroc02us
Moderator
Cash: $ 204.95
Posts: 1013
Joined: 09 Feb 2009
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Yes, max out your Roth IRA's after you pay off the car. It's only 19k for gods sake and you clear $4750 a month. That car debt would be gone in like 4 months.
As for the 16,500 limit, that is on 401k's.
The federal government puts a lid on the tax-advantaged salary reduction amount you can contribute to your 401(k). In 2011, employees max out at $16,500 ($22,000 if you are 50 or older). So, that isn't that big of a deal if you were to put some money into taxable investments.
Personally, I would put your extra money into taxable investments for the long haul.
At these investment rates, you could easily be in the 3-4 million dollar range if you don't touch the money and let it grow.
Oh, another thing, before you go off on the taxable investments and putting more into your 401k, I would pay off that mortgage. Continue to max out your Roth's every year, which would leave 4k left to do with what you want. It would only take 37 months to pay off the mortgage, even faster with your tax refund from the interest paid, putting 4k towards it. So, by the time your 27 you have a paid for house, paid for car and $4000 to invest each month. Wouldn't that be sweet.
Good luck!
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Wed Apr 06, 2011 7:04 pm |
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KatherineLee88
Preferred Member
Cash: $ 22.65
Posts: 112
Joined: 10 Jan 2011
Location: Iowa
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quote:
Originally posted by littleroc02us
Yes, max out your Roth IRA's after you pay off the car. It's only 19k for gods sake and you clear $4750 a month. That car debt would be gone in like 4 months.
As for the 16,500 limit, that is on 401k's.
The federal government puts a lid on the tax-advantaged salary reduction amount you can contribute to your 401(k). In 2011, employees max out at $16,500 ($22,000 if you are 50 or older). So, that isn't that big of a deal if you were to put some money into taxable investments.
Personally, I would put your extra money into taxable investments for the long haul.
At these investment rates, you could easily be in the 3-4 million dollar range if you don't touch the money and let it grow.
Oh, another thing, before you go off on the taxable investments and putting more into your 401k, I would pay off that mortgage. Continue to max out your Roth's every year, which would leave 4k left to do with what you want. It would only take 37 months to pay off the mortgage, even faster with your tax refund from the interest paid, putting 4k towards it. So, by the time your 27 you have a paid for house, paid for car and $4000 to invest each month. Wouldn't that be sweet.
Good luck!
For the most part I agree with this... but then it depends on what the interest rates are on the car loan and the mortgage. If they are quite low (say 5% or less) then it makes more sense to just pay them as agreed for the life of the loan and put the extra income stream into Roth IRA and 401K since these, if invested appropriately for your age, should return more than 5% a year.
Also, you mentioned college for children. You could start a 529 plan which is another special tax type of account. You don't even need to have children yet - you would name the account to a niece of nephew and can reassign it to a child in the future.
After these special tax accounts, then put what's left into taxable accounts.
But, that's just what I would do.
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Thu Apr 07, 2011 2:34 am |
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oldguy
Senior Member
Cash: $ 308.90
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Joined: 21 May 2006
Location: arizona
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You're doing great, especially at your ages!
I doubt that you qualify for the $10,000 Roths, the upper salary limit is about where you are (or soon will) - with bonuses and all you are at about $170k.
Wealth comes from the two apprciating assets - stocks and real estate. You cannot 'save' your way to wealth, savings and CDs are designed for the safe storage of wealth, ie wealth preservation.Their purpose is to offset inflation, not grow. At your age, you should avoid the no-risk savings products, and also avoid the high-risk products where your principal is at risk - that leaves 'moderation'. The winners of past generations are those that avouded speculation - invested in mid-risk (10%/yr to 12%/yr) steady prouducts, and let the power of compounding grow their wealth.
In your case, I would max the two 401k's ($33,000/yr) and use a taxable account for your pre-59 1/2 wealth. An index fund at a no-load company such as Vanguard grows tax deferred, and it gets preferential tax treatment when'if you sell some. Same with your 401k accounts - invest in SP500 Index Funds or in Target2050 Funds. As an example, if you ivest $50,000/yr total ($33k + match + taxable account) you will have about $12,000,000 in 30 years (the power of compounding is astonishing, it is useful to familiarize yourselves with the math, it gives you a good knowledge base).
I would do something with the $60,000 savings accounts, that is far too much 'dead' money - put most of it to work. A substantial taxable fund will serve as a backup EF, you can sell stock and get the cash within 2 days - a ready-cash EF of $10k is plenty (we cap ours at about $5k).
And I would NOT prepay the loans (unless you have toxic rates), I would pay per schedule and retain the use of inexpensive capital as long as you can.
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Thu Apr 07, 2011 9:31 am |
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GotCommonCents
Contributing Member
Cash: $ 6.20
Posts: 31
Joined: 29 Mar 2011
Location: North Carolina
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I'm not going to answer all your questions because others have. I will give one piece of advice I feel is vital. I strongly suggest combining your finances with your wife and develop a game plan and budget together. Your money will flow to what is most important in your lives. When you are able to come together about money, your relationship will be at the high level it needs to be because you will be in communication about everything that is important to each of you if you are in communication and act as one with money.
For more advice about how to handle your personal finances and manage your life in a way that will be prosperous, check out my blog:
www.GotCommonCents.com
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Thu Apr 07, 2011 4:20 pm |
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jeffreymint
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Location: Kissimmee, FL
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I would still keep saying to live within your means, Do not do impulse buying. When you go out and buy, write down what you need to buy and do not rely on the 'mental-note'. That is when budgeting cost you much.
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Thu Apr 07, 2011 11:56 pm |
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