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So I've got a lot of goals currently and am feeling like I'm overwhelming myself and not able to do all of them.
Here's what I want:
-Individually save 15% of my gross income in my 401k (Currently saving 10%...my company also puts in 10%, so I need to do 5% more myself. Current 401k balance: $20k)
-Max out my ROTH IRA (Opened one two months ago..currently doing 200/month...plan is to raise it to 416/month starting 2/2014)
-Save $20k for a house (or condo) ($15k would be downpayment on a home around $65k with a 15 year mortgage, plus an additional $5K for closing costs and initial furnishings). Plan is to have a roommate once purchased to pay the majority of the mortgage. Currently have $0 saved for this.
-Save to buy a car cash (10k) - Currently have $0 saved for this.
-Have an emergency fund equal to 6 months of expenses, which is $7k (Currently at $1k)
Here is what my revised budget will look like in order to get me to these goals IN 36 MONTHS, which is my preferred timeframe:
student loans 300
electric 40
cell 50
groceries/household 150
transit card 100
laundry 30
extra 5% into 401k 250
rent+gas 873
car 275
house 550
me 150
travel 150
roth ira 416
emergency fund 166
Total: 3500 (Net monthly income: 3500)
A couple of notes:
-Single, age 34 (turning 35 in two months), no kids, no car currently
-Living in Chicago area...planning to move back to Atlanta suburbs in about 3 years (would need a car there)
-Currently renting a 500 sq ft studio that's about a 45 minute commute to work
-"Me" category is for things like: eating out/drinks, going out with friends, cab fare, hair appointments, gifts (usually at work), clothes, etc.
-This is a planned budget, so to get to this the cut backs I'd still have to make at this point would include reducing cell phone plan, cancelling my cable, cutting grocery expenses in half, and limiting travel to once a year holiday visit to my family in South Carolina
A couple of questions:
-Does this seem like a realistic budget?
-Between the 15% to the 401k and maxing out the ROTH IRA, am I putting enough towards retirement?
-Should I save more than $5k out of the $20k for house-related stuff (furnishings, closing costs, unexpected expenses, etc.?)
-If in 3 years when I'm ready to purchase a home, I would like to put more down than the $15k I've saved, would it be wise to use funds saved from my ROTH IRA or 401k by chance (feel free to slap me for asking this question lol)?
You'd pay off the SL even though it's only at 3%? I'd rather that money go into retirement....?
I don't have a car to pay off. I was saying I'd save to buy a car cash.
I would pay off the student loan as soon as possible. Yes, you could beat the 3%, but why? When you could put 100% of your payment towards your retirement after the SL is paid off.
You pay a ton in interest...even @ 3%...question is, if you were to save it right now...could you beat 3%? Not. Right. Now. If it was a house it would be a different answer, but because it's a student loan I would pay it off ASAP. Just cuz if you got in a pinch, you couldn't sell it to get out from under it.
I thought your $275/car you had listed was a payment...my bad.
I would pay off the student loan as soon as possible. Yes, you could beat the 3%, but why? When you could put 100% of your payment towards your retirement after the SL is paid off.
You pay a ton in interest...even @ 3%...question is, if you were to save it right now...could you beat 3%? Not. Right. Now. If it was a house it would be a different answer, but because it's a student loan I would pay it off ASAP. Just cuz if you got in a pinch, you couldn't sell it to get out from under it.
I thought your $275/car you had listed was a payment...my bad.
I understand where you're coming from.
Yeah, I'm totally car-less right now. But if I move back to Atlanta from Chicago, I'd basically have to get one again...
One of the things we did when we were young was set up a budget much like you. And it felt IMPOSSIBLE. And the first few times it was impossible.
So, I scaled back the original amounts and then as we got used to having that income sucked away I would crank up the amounts a little more. It took about 6 months, but by doing it gradually, we got to the amounts we really wanted to sock away, and it was pretty painless.
Location: Chapel Hill, NC, formerly NoVA and Phila
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I wouldn't necessarily pay off the student loans as soon as possible. You don't even mention the amount, which may be huge and take a long time to pay off. (or perhaps not). If you tell us that amount, it might help. In any case, I would save for retirement while still paying off the loans. This way, you do not fall behind on retirement savings. At age 35, missing a few years of savings can hurt you, because you cannot retroactively put money into your 401k or IRA for years you missed investing.
Having said that, I think you are taking on too much at once. I think you need to pick one big thing to work on now. Then wait 6 months to a year and add in another big thing. Then wait 6 months to a year and add in a third thing. Trying to accomplish too many things at once can cause you to fail in all things. I always believe in small steps toward change.
So perhaps now you should just concentrate on investing in an IRA which means upping your savings. You wrote that you would up it to $416 per month which is $5000 per year. But the annual limit is $5500, so I would up your contribution to $458 per month. See how that change works for you while keeping the rest of your budget the same. Then after 6 months, if you think you can do more or you see that you have money left over, then start putting that toward your house or car savings fund. A year from now, if you think you can take on another task then think about adding the 5% to the 401k.
You said in the beginning that you are overwhelmed by all that you want to accomplish. And I agree that it is too many things. Try one big thing, then add in another slowly, then another, until you are comfortable at each level. Then undertaking one more sacrifice won't seem so great.
Good luck!
ETA: I just saw that Tally said a similar thing about gradual changes. I concur.
So I've got a lot of goals currently and am feeling like I'm overwhelming myself and not able to do all of them.
Here's what I want:
-Individually save 15% of my gross income in my 401k (Currently saving 10%...my company also puts in 10%, so I need to do 5% more myself. Current 401k balance: $20k)
-Max out my ROTH IRA (Opened one two months ago..currently doing 200/month...plan is to raise it to 416/month starting 2/2014)
-Save $20k for a house (or condo) ($15k would be downpayment on a home around $65k with a 15 year mortgage, plus an additional $5K for closing costs and initial furnishings). Plan is to have a roommate once purchased to pay the majority of the mortgage. Currently have $0 saved for this.
-Save to buy a car cash (10k) - Currently have $0 saved for this.
-Have an emergency fund equal to 6 months of expenses, which is $7k (Currently at $1k)
Here is what my revised budget will look like in order to get me to these goals IN 36 MONTHS, which is my preferred timeframe:
student loans 300
electric 40
cell 50
groceries/household 150
transit card 100
laundry 30
extra 5% into 401k 250
rent+gas 873
car 275
house 550
me 150
travel 150
roth ira 416
emergency fund 166
Total: 3500 (Net monthly income: 3500)
A couple of notes:
-Single, age 34 (turning 35 in two months), no kids, no car currently
-Living in Chicago area...planning to move back to Atlanta suburbs in about 3 years (would need a car there)
-Currently renting a 500 sq ft studio that's about a 45 minute commute to work
-"Me" category is for things like: eating out/drinks, going out with friends, cab fare, hair appointments, gifts (usually at work), clothes, etc.
-This is a planned budget, so to get to this the cut backs I'd still have to make at this point would include reducing cell phone plan, cancelling my cable, cutting grocery expenses in half, and limiting travel to once a year holiday visit to my family in South Carolina
A couple of questions:
-Does this seem like a realistic budget?
-Between the 15% to the 401k and maxing out the ROTH IRA, am I putting enough towards retirement?
-Should I save more than $5k out of the $20k for house-related stuff (furnishings, closing costs, unexpected expenses, etc.?)
-If in 3 years when I'm ready to purchase a home, I would like to put more down than the $15k I've saved, would it be wise to use funds saved from my ROTH IRA or 401k by chance (feel free to slap me for asking this question lol)?
1. Health insurance?
2. Incidentals? Social? Entertainment?
3. Furniture replacement fund? (Suggestion: Use 5% of total current housing cost)
4. Retirement contributions are probably adequate as they stand but do not take money out for buying a home! You WILL regret it. And absolutely NO 401k loans, unless you have unanticipatable out of pocket medical expenses over $20,000 in a single year and still have a stable job! If you don't keep that job long enough to repay it, that loan is really just raiding your retirement, and trust me, when it's your turn there will be few old age government benefits left because the government is up to its eyeballs in debt and it's only getting worse. Retirement money is retirement money, not a housing downpayment, emergency fund, or something to take a loan on to buy a nice car.
5. The average cost of owning and operating a car according to AAA and Edmunds is over $8400/year ($700 per month). If you cannot comfortably save $700/month for a car without interfering with your other financial goals, you likely cannot afford a car due to insufficient cash flow. However, you may want to consider delaying buying a home and redirecting those savings if the home means less to you than having a car (you decide).
6. I also would suggest (though this is optional) taking on roommate(s) and applying the difference to increasing your student loan payments (I'm assuming you do want to get out of debt, no?)
7. You shouldn't buy a home UNLESS and UNTIL you have 20% down payment, closing costs, RE commissions, moving costs, furniture, and emergency fund. Emergency fund should be 6 months of expenses or 150% of the most expensive single repair the home might need, whichever is higher. The down payment must be separate from other savings goals (You can only spend a given dollar once!)
One of the things we did when we were young was set up a budget much like you. And it felt IMPOSSIBLE. And the first few times it was impossible.
So, I scaled back the original amounts and then as we got used to having that income sucked away I would crank up the amounts a little more. It took about 6 months, but by doing it gradually, we got to the amounts we really wanted to sock away, and it was pretty painless.
I understand...I started my 401k contribution around 5%, then did like 6%, 8%, 10% to get to where I am now.
I understand how small changes work best...I just guess sometimes I think to myself..."Wow, I only make enough money to save for ONE thing right now??" I'm 35...shouldn't I be in a place to easily save for a house AND a car without neglecting my #1 priority right now, which is retirement funding?
I wouldn't necessarily pay off the student loans as soon as possible. You don't even mention the amount, which may be huge and take a long time to pay off. (or perhaps not). If you tell us that amount, it might help. In any case, I would save for retirement while still paying off the loans. This way, you do not fall behind on retirement savings. At age 35, missing a few years of savings can hurt you, because you cannot retroactively put money into your 401k or IRA for years you missed investing.
Student loan amount is $40k. So I'm not too cool with waiting for that to be paid off before I can buy a home. I feel like my goals of 20% down, a roommate, and an inexpensive home would put me in a position to pay the loan off very quick once I buy the house. I've been putting off purchases and paying on the loan since my mid twenties and have brough the balance down to where its at today, so I guess I just don't want to have to keep putting off everything for that....hope this make sense.
Having said that, I think you are taking on too much at once. I think you need to pick one big thing to work on now. Then wait 6 months to a year and add in another big thing. Then wait 6 months to a year and add in a third thing. Trying to accomplish too many things at once can cause you to fail in all things. I always believe in small steps toward change.
So perhaps now you should just concentrate on investing in an IRA which means upping your savings. You wrote that you would up it to $416 per month which is $5000 per year. But the annual limit is $5500, so I would up your contribution to $458 per month. See how that change works for you while keeping the rest of your budget the same. Then after 6 months, if you think you can do more or you see that you have money left over, then start putting that toward your house or car savings fund. A year from now, if you think you can take on another task then think about adding the 5% to the 401k.
Thanks for pointing out the IRA miscalculation...yes I should have put in $458/month, so I will make that change on my end. Do you think I'd be set then in terms of how much I'm contributing to retirement? If you were me, after getting comfortable with the addition of the maxed out IRA, would you still try to save more in retirement, or move on to one of your wants (either house purchase or car purchase)?
You're right that I'm taking on too much at once (see my post above this posting)...it's going to be hard to choose what to do next after the ROTH IRA is maxed. Car or house? I want a house 'more' than a car, but the next place I plan to move, I will 'need' a car...since the car will be a need, I'm thinking I should pick the car and forget about the house downpayment for a while. I could just rent a while longer, but the longer I rent the less likely I am to save for a house. Sometimes I think I might just need to get comfortable with renting forever considering that I do like my freedom/flexibility and I tend to move a lot. Anyways, sorry to digress.....
You said in the beginning that you are overwhelmed by all that you want to accomplish. And I agree that it is too many things. Try one big thing, then add in another slowly, then another, until you are comfortable at each level. Then undertaking one more sacrifice won't seem so great.
Thanks for the advice.
Good luck!
ETA: I just saw that Tally said a similar thing about gradual changes. I concur.
(See responses above in red....)
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