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What should we be saving in 2015?

November 2, 2014

First, let’s talk about 2014.

Our strategy for 2014 was to get as much money into our tax deferred retirement accounts as possible.  We had a significant amount of  one-time income as part of T starting his job, so we wanted to minimize our taxable income.  Also, T’s a bit behind on retirement savings, and we wanted to take advantage of the windfall to give him a boost.  But this year was a unique year, and we need to figure out what our plan is for a more normal year.  How much should we put into retirement, and what else do we need to worry about.

2015 Considerations

We can’t afford to keep saving at this level of retirement savings.  At least, it really feels that way right now due to cash flow this time of year.

But…  I did the math, and we actually can maintain this level of retirement savings.  Our taxes will be a lot less next year, which helps.  We would have to take advantage of T’s summer salary (he gets over 2x his usual pay for ~3 months) and use it to fund ourselves in the rest of the year, but it is completely possible. .  Or we could ignore our property tax and home maintenance fund until summer salary comes around, and just always fund those fully in the summer.   We’d even be able to save a fair amount of cash (excluding planned short term spending like the home maintenance fund)

But even if we can, does that mean we should?  Should we shift a more focus to cash savings or mortgage pre-payment?  The minimum retirement savings rate I’m comfortable with right now is 15% of gross.  I think we are allowed to save at least 26% if we maxed out all of the options.  Maybe more.  So, how do we choose?  I’ve always made it a goal to max out retirement accounts, because we could, and because we didn’t have anything more pressing to spend the money on.  But have things changed?  Do we have upcoming needs that are pressing?  Here are some thoughts:

  • Mortgage pre-payment: This is definitely something I want to do, for a variety of reasons.
  • New car in 7 years:  Our car is now 3 years old.  I think?  We might keep it longer than 7 years, but it makes sense to think about now.  Ideally, we’d be setting aside about $250 a month for a car.  (Wow, cars are expensive.  Another reminder to stay a one-car family!)
  • Home projects?  We are planning on saving 1% per a year for home maintenance.  But does that cover, say, a new bathroom?  Probably not.  I don’t know.  I don’t have any big projects planned aside from the earthquake retrofitting, and we’ve already set the money aside for that.  We’ll need  a roof in 5 – 7 years, and a retaining wall in 15 or 20.  Those should be part of the maintenance cost though.
  • Increased emergency fund?  I think T and are the type of people who are most comfortable with lots of cash on hand.  We certainly could increase this a little bit.  We’re still at about $25k here, which is feeling smaller and smaller these days.

The Plan

This is still unanswered.  I’d like to improve our cash flow right off the bat in 2015, so we’ll start the year at 15% retirement and go from there.  I’ll determine how much we want to put into mortgage pre-payment, then we’ll consider increasing our savings rates in the summer.

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11 Comments leave one →
  1. same boat permalink
    November 3, 2014 7:38 am

    We are thinking through things similarly to you…we are closing on our first house in December. If it helps,we are not counting upgrades such as a new bathroom as part of our home maintenance account. We are using it for true maintenance/repairs such as an appliance breaks, we have a leak, pipe bursts, new AC, etc. I think if you would count a kitchen remodel or bathroom remodel you would probably need to save more than 1% to allow for everything else. I’m sure you could make an argument either way, but that’s what we are doing with targeted saving for other “wants” such as new furniture, bathroom remodel, etc.

    • November 4, 2014 10:27 am

      I wonder about the 1% metric in expensive markets. I don’t really have immediate plans for a new bathroom and our kitchen is relatively current, but I agree that we’ll probably want to build up a separate account if those things do become desired. Right now, we mostly just need furnishings, which goes into a general “home” category.

  2. November 3, 2014 7:39 am

    I know these kinds of problems! The answer is most likely, “it’s all ok.”

    One thing I would caution– treat summer money like extra money– stick it in savings you wouldn’t do otherwise or pay down the mortgage with it. (Or spend it on a one-time spending thing.) Don’t get used to having it. Chances are he’ll keep getting summer money, but sometimes you get three months of summer covered (windfall!) and sometimes you only get one or none, just because of the way the grants line up. And sometimes you prefer to buy out a class or other responsibility and it’s nice not to need the money.

    • November 3, 2014 8:34 am

      That is great advice to keep in mind as we go.

      And yeah, this is one of those problems in which every answer is probably OK!

  3. November 3, 2014 9:36 am

    I have had similar problems like this in the past 🙂 For now, I’m mostly sticking to the same system I set up until a new life change comes along: a new job, a city/state move, wanting to buy a house, or reaching FI. (My boyfriend moving in just affects spending, not saving) I’ve realized that once you’re saving some X% to retirement, especially in my twenties, it mostly doesn’t matter what you do with the rest of the money. Mortgage pre-payment? More retirement savings? Taxable investments? Extra charitable donations? All good options.

    I’m personally not saving for a new car. I put so few miles on mine that it should last for 10-15 years and I’ve had it for four. I’d originally planned to set aside the money in cash in a savings account to buy a new car when it’s 10 years old, once the mortgage is paid off in another year or two or three. I’ve decided against that and will just throw all of my extra savings into taxable investments once the mortgage is gone and sell off lots and rebalance when it’s time to buy a car since I really have no idea when that’ll be.

    The great thing about cash is that it is super flexible 🙂 While I’ve been figuring out what to do with my job, I’ve just been leaving all of my savings in cash, no mortgage pre-payment or taxable investments. We’re probably going to take a big trip while I’m between jobs, so some of my cash will go to that and then some more to next year’s Roth IRA and lastly some to the mortgage eventually, but I’m not really in a hurry. It’s still increasing my net worth and saving money even if I don’t allocate the funds somewhere in particular! Plus, my mortgage is pretty small now, under $150,000.

    • November 4, 2014 5:42 am

      At the end of the school year, if my calculations are correct, we will have more than 80 k in cash for me to take unpaid or half paid leave with in paradise.

      • November 4, 2014 10:24 am

        That is SO awesome!!!

        • November 4, 2014 10:30 am

          I dunno, it feels pretty dumb to have 80K in savings…

          But… it’s also nice to take a year off doing nothing but research and live someplace super expensive without having to worry about not being able to afford it.

          Fortunately DH’s company just got a bunch more grants, so unless he does something stupid to make him fired, the company should be around paying his salary for at least another few years. Because without his salary we really couldn’t afford a year in paradise.

          • November 5, 2014 9:56 pm

            Of all of the “pretty dumb” things a person could do, having 80k in savings really just doesn’t rank too high

    • November 4, 2014 10:29 am

      Yeah, I’m not sure if we’ll save for a car either. Savings something like $3k a year for a far off expense doesn’t seem… important. as long as I’m saving cash generally (as opposed to putting every last cent to mortgage prepayment), earmarking isn’t quite as important.

  4. November 4, 2014 4:40 am

    So thoughtful! You are in a great position to have those options!

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