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Goals for our new life

October 16, 2013

This year has been a bad year for goals.

I didn’t set any financial goals, aside from maxing out our retirement accounts for the year and increasing cash savings by… whatever they happened to increase by.  I didn’t set any personal goals.  I did run a marathon, but other than that, I let my running slide.

This year was all about finding a new job (for both T and I), dealing with being apart so much, and accepting the big life changes that were coming our way.  Honestly, that was enough, but not enough to call it a goal.

Next year though?  We can set goals!

I have my job offer with a start date set in early January.  The raise is a little smaller than one would expect for changing jobs, but the bonus structure means it could turn out to be a very significant raise if I do well.  Since I’m changing industries, my bargaining power was a little bit weak.  I tried though!  T has had his offer, and his salary more than doubled from his post-doc salary.  We  will have just one place to live, a place we will both call HOME.

In short, from a finance perspective, things are more predictable than they have ever been.  My little planner heart is so happy, and I couldn’t stop myself from making a few preliminary goals.  Very preliminary, as I haven’t discussed with T yet!

Savings:

  • House fund:  $100,000 (we have a head start on this)
    We would like to put 20% down.  Our goal is to be able to pay our mortgage with one salary.  At most, we will be looking in the $700k range two years from now.   I’d like to spend less, but I’m not sure what the market is like there.
  • Baby fund:  $8,000
    Arbitrarily, I’d like to have $20k in a baby before having a baby, no sooner than 2 years from now.  As we think more about this, the number may change.  At any rate, it seems prudent to start setting aside this money right now.
  • Car Replacement Fund:  $3,500
    I’d like to have $25k for a new car several years from now (2021).
  • Retirement:  $45,000 contributions
    Max out my 401k and save $27,500 in T’s retirement vehicles

Spending:

We  hope to allocate a  good amount of money to explore & enjoy our new city, since we are  opting for a cheaper place to live in order to do this.  I  want to plan my dream vacation of Nepal / Annapurna for the fall, pending our work schedules.

Reflections & Advice Wanted:

Two things come to mind when looking at these plans.

1.  That looks like a lot of cash on hand.   What is the best way to minimize opportunity cost in the next 2 years?  We currently use simple high yield savings accounts.  CDs?  I-bonds?  T-bills?  Money Market?  Something else?

2.  Does it really make sense to save for a baby in a car, when we could quickly amass those savings when the time comes [once we are no longer saving for a house]?  Probably not.  Especially not the car.  I mean, 2021???  Seriously?  And if not, should we dump the excess into T’s retirement (can contribute about $7k more)?  Or just get our downpayment faster?  Or what?  I’m leaning towards retirement (tax shelter).

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16 Comments leave one →
  1. October 16, 2013 9:51 am

    Woo! I would consider using Ally CDs for some of the funds and possibly i-bonds, though they’re not paying that much more than CDs today.

    One of the great things about accumulating cash is that it really can be used for any label, so it matters less what you label it and more that you save it. For example, before I bought my condo, I was setting aside $250/month for a new car in a cash savings account and then the rest towards my down payment savings account. I eventually combined them together to use for my down payment, but having that distinction did make me feel better.

    Don’t forget about closing and moving costs when you’re calculating how much you need! Though it sounds like you guys are a ways off from that yet.

    I would probably make sure you’re maxing out retirement accounts before accumulating cash, especially given that you guys are now quite high income. If you’re planning to save about $150,000 next year, I’d probably add that extra $7k to T’s retirement accounts, especially considering that he hasn’t had any over the last few years while he was in grad school and a post doc.

    You guys are also probably getting close to the 33% tax bracket, so more tax shelter is good. For married filing jointly, that starts at $223,051 of taxable income.

    • October 16, 2013 11:44 am

      To clarify, the house fund is already at ~50k, so we aren’t saving all of it in one year! Although it is in general “long term savings” and it might dip down during transition costs. I’m taking about a month off from working (!)

      He’s had a Roth IRA since we moved in together, but that is limited to ~5-6k/year. There is also an associated defined benefit plan in his package. Still, it probably makes sense to max the retirement out the first year or two, at least until we get the tax shelter of a home. Long term, maxing out retirement accounts is likely overkill.

      I used to be big on different cash funds, but with our cashflow situation changing, it seems to make much less sense.

      • October 17, 2013 5:07 pm

        Woo for taking a month off from working!! That’s going to be awesome I hope!

        Long-term, maxing out retirement accounts may be overkill, but if you plan on taking any time off when you have children during which you don’t have access to retirement accounts, I would consider them especially valuable now. And not paying taxes on that money going in is really nice too.

        On the tax shelter as a home – it’s only valuable if your itemized deductions exceed the standard deduction ($12,200 for 2013). Some items that you can itemize: charitable donations, property taxes, part of your vehicle registration (maybe depending on your state), mortgage interest and points, and state income or sales tax. If I was married, I wouldn’t be itemizing a cent because my deductions only add up to about $10,000 this year and will keep going down. But your guys’ mortgage interest rate and amount will be higher, property taxes higher, other taxes higher, etc. so maybe you will get something out of it.

        • October 17, 2013 6:58 pm

          The month is over the holidays, so I have a feeling it will fly by!

          With our combination of state tax (roughly 9% in Cali for moderately high income earners), property taxes, and a relatively high mortgage, it will help a lot with taxes.

          I think a home is a tax shelter mostly because when you keep it over the long term and it appreciates in value, you don’t have to pay taxes on the gains…. but that isn’t really applicable to us in the short term i guess.

    • October 16, 2013 11:44 am

      Also, looks like this might also be a good option if we can commit to 2 years:
      https://www.penfed.org/Money-Market-Certificate/?WT.ac=1148

      • October 17, 2013 5:21 pm

        The great thing about Ally CDs is that they have low penalties (60 days’ interest) for breaking them! I had most of my money for my down payment in CDs and then broke them all when I put an offer in on a place. What I might do is put a chunk of money in a no-penalty CD to lock that rate in (even though it is basically the same as the savings account – but that rate can go down) every few months and then lock some into a 5 year CD initially.

        For example, with a 5 year CD, the rate right now is 1.49%. If you leave $10,000 in there for 12 months, you would earn $149 in interest, but pay $24.49 in early withdrawal penalties, putting your actual yield at 1.245%, which is still better than the 2 year CD at 1.04%. And if you leave the money in there for 2 years, your actual yield would be higher than 1.245%.

        You could also put money into CDs in chunks of say $10,000 (or some other number) to reduce the number of CDs you have to break too.

        Some food for thought anyway!

        • October 17, 2013 6:43 pm

          Nice! I actually should dump some in right now, since we already have much more cash on hand than we potentially need. Thanks for the tip!

  2. blueflower permalink
    October 16, 2013 4:25 pm

    Hi! Long time reader but never commented. But I had to after reading that you are planning a trip to Nepal. I am from Nepal 🙂 and live in the bay area as well. You’ll love it. It is so beautiful and so different culturally as well. Sadly I have never been to Annapurna (i know!) but I know you’ll have a great time. I will be looking forward to the pictures 🙂

    • October 17, 2013 11:01 am

      I am tentatively planning for next winter (december-ish), but I’m really looking forward to it anyway!

      I do love the mountain access, and I think we are living in a sunny area (so no SF fog!). I’m pretty excited too. California as a whole is just amazing.

  3. October 16, 2013 4:51 pm

    Yay yay yay!

    I like to have different separate savings accounts for each purpose,but I’m also flexible about moving funds between them/combining them.

  4. oilandgarlic permalink
    October 17, 2013 9:16 am

    Wow.. I’m just impressed that you can even conceive of saving that much for a house along with maxing out retirement and other goals! We did not save ahead for kids specifically, though we had savings in a general account. Daycare is the most expensive cost and even with family help, we still got some nanny/cleaning help.

    • October 17, 2013 10:47 am

      We have 1/2 of the house fund already, so we aren’t starting from scratch. Plus there is some extra money we can split over 2-3 years, sort of like a signing bonus type thing that will go away eventually. And I could be being wildly optimistic – these are still preliminary!

      It was surprising to me too, actually – i never dared run any numbers until I had a job offer.

      Our gross income will be increase by something like 60k or 70k with expenses remaining roughly the same. We are already saving ~30k for retirement, so when our access to Roth IRAs goes away, it isn’t that huge of a leap. I have no idea how our cash savings have done this year, but I know we’ve saved a little.

  5. October 17, 2013 12:25 pm

    I’m so excited for your more financially predictable life! And for all the plans you’re making.

    I have no suggestions on where to park money, but it does seem a little silly to start saving for a relatively small goal 8 years out when your cash flow situation will be so different after you buy the house.

    • October 17, 2013 6:44 pm

      Totally agree – seems silly after I listed it out. 🙂

      More predictable = able to plan = much much less fretting on my part!

  6. October 19, 2013 11:49 pm

    Yay! Don’t forget to make yourself a timeline/workplan about how to accomplish all your goals!

  7. October 31, 2013 7:54 am

    On the Ally CD early withdrawal penalty: http://www.financialramblings.com/archives/ally-bank-cd-early-withdrawal-penalty/

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