What should we be saving in 2015?
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.
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.
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.