basic Advice for a newbie

reddeezy

Hey MM people, I’m just curious as to the percentage of income folks are allocating to specific savings goals each pay. A bit of background - I am 28 and my hubby is 29. We have no debt besides our mortgage, own our vehicles outright and each clear about 1600.00 per pay (65k gross each per year). We live in Canada and work for the government so therefore, we have medical coverage and indexed employer pensions for retirement plus we contribute $150.00 each, per pay, to a TFSA that we play on using for retirement. Besides that, we haven’t been saving nearly as much as we should be. We are comfortale paying all of our bills, taking nice vacations, going out for dinners etc. but we know we need to start being more conservative with our money as we would like to start a family very soon. I want to improve our spending/saving habits and get ourselves in the best possible financial shape over the next few months before going off of BC. Currently, between the 2 of us, we have 6k in an emergency fund. Basically, my questions is this – do you have set amounts deducted from each pay to supplement retirement, long-term savings, short-term savings? Other savings accounts? If so, which percentage do you allocate to each? Thank you so much!!!

brij2006

The rule of thumb is to put 15% of your gross income toward retirement first. Also to have 6 months of expenses in your emergency fund.

We now are doing Dave Ramsey's plan to get debt free, but before that we put % of our income into various accounts.  5% into an account for travel, 10% into an account for large home repairs (new siding and roof in 10 years), and 10% for random saving (this never had a purpose, but was money set aside whenever we wanted something larger).

Xstatic3333

Hi!  This is a good question.  I'll tell you what we do, but as I write it out I realize we have a ways to go and are probably not the example you should be following!  Also, we started budgeting right before the holidays hit, so all savings goals except retirement were compromised a bit the last two months.  

We are each putting 10% to retirement (mine is 5% of my take home plus 5% employer match into a Roth IRA, his is a pretax pension contribution plus 2% to a Roth IRA).  We are 29 and 34, and a bit behind, so this should be 20%.  

Our e-fund we consider fully funded at $10,000, but will want 15,000 once we starting TTC (2 years off).  

I get $135 a month from a second job and use this to fund my short-term savings. H puts 200 a month in his.  For each of us, this is in the ballpark of 5-7% of our income.  We each have separate short-term accounts (they get 4% interest from our credit union, so the more the better!) and use these accounts to fund travel, car maintenance, furniture, big technology purchases, etc.  We discuss purchases jointly and keep a minimum of 500 "reserves" in these funds at all times.  Travel is non-negotiable for us, though some probably wouldn't travel in our situation.  

Our long-term savings is right now a down payment fund.  This is a joint online account.  Once the holiday shell shock wears off, H will be putting $200 a month into this and I will be putting $150 a month plus any windfalls and income from my third job (which is sporadic).  This is around 6% for me and a little bit more than that for H.  Our tax refund will also go here.  

That said, we have way more debt than you right now.  I have a $3000 9% interest student loan that I am attacking right now with the (very doable) goal of getting rid of it this year.  H has a low-interest student loan that will be gone this year just by paying the minimum.  We also each have car payments; H is putting a fair bit of extra to his, and mine is low interest and will be gone in 1.5 years if I just make regular payments.  Once the cars are all set, all of those payments go to long-term savings (this will be $500 or more monthly.)  Then, once we have the house they will be split between beginning to save for the next cars and TTC.  

reddeezy

Thanks guys so much. I feel comfortable with retirement since as i mentioned we both have indexed pensions and are contributing on top of that. As it stands now, we have more than 30k in those accounts but obvioulsy that money cant be touched until retirement and we dont even have access to it until that time comes.

We purchased our home 5 years ago so we are comfortable with our mortgage costs and household bills etc... so its really just crunch time to cut back on the "fun" money and start saving!!!! I'm going to work very hard to cut my spending even if that means saying no to friends more often and not being as social as we typically are. Today was pay day so im going to use this next 2 week period to gauge what we could reasonably put away.

hoffse

This is all relative, but 15% gross into invested retirement accounts is a good bench-mark for 20-somethings.  You definitely want to be doing that by the time you hit 30.  

Right now H is finishing law school.  On my income I put away 15% into a Roth 401(k) which is an employer-driven retirement account here in the states.  They grow tax-free.  I also max out our Roth IRAs for both of us, which is an individual retirement account. Those also grow tax-free. That amounts to $11,000 per year on top of my 15%.  So grand total for me is about 23% of my gross income in retirement accounts.  That's kind of high, but I'm doing that now so that I can cut back to a true 15% if needed when we have children.   Those suckers are $$$$.

I have $10,000 in an e-fund.  This will cover all our insurance deductibles simultaneously (H has a catastrophic health policy so this pot needs to be high).  We will probably leave it at that even when he starts working in the fall and his insurance deductible decreases.  The 6-month e-fund is a good benchmark for this if you are in a field that might fire you with little notice.  If you are in a stable field, a month or two plus your insurance deductibles will suffice.

I also have about $7,000 in a house fund.  Anything extra each month goes to this account.  It's growing slowly but surely.  We'll really tackle this once H starts working in September.

I also have student loans.  They are low-interest and through my parents so I won't be pre-paying.  They are going to be done in 8 years.

I basically live on about $500-$600/month outside of my rent and the occasional big shopping spree to revamp my professional wardrobe.  H lives on less, but he's capable of eating oatmeal and rice every day.  I pay for most of his living expenses except for rent (he lives in a different city as me right now).  We're trying to keep costs down so that we borrow as little as possible while he's finishing law school.

lifeonthehill

We are working towards things but nothing is perfect! I can try and break it down.

We have $16,200 in student loan debt we are paying off right now. That costs us $218 a month.

We are trying to save up $10,000 into a 6 month living expenses fund right now and we put a varying amount in every month somewhere between $1,750-$2,250. We need to save $4,750 more. This works out to be about 65%-75% of our income.

We contribute NOTHING to retirement which is terrible! When H gets his raise in July we will be doing 5% with a 5% match for a 401k. Also we will start saving an addition 5% each month to put into a Roth IRA each year. This will put us at an overall 15%. We plan to up this every year with the raise H will get by 1% until we hit a solid 20%.

LS45

I think the best way to start is to keep track of what you're currently spending. Do it in Mint or just on a spreadsheet to see where you are currently allocating your money. Then you can make goals to cut back in areas where you overspend. You can also make a sample budget for when you do have a family- increased spending on food, daycare, college fund, etc. to see what kind of emergency fund you'll need to have to support that.

jessica490

H and I contribute 6-7% to our 401K's and have started increasing that every year and we are both 31. We have some catching up to do. We also have a house DP which has $18,000 in it and plan on moving in about 2 years. Our savings account has about $8500 right now but H just started school so we took from that. Our goal is to always have $20,000 in there so we are catching up on that as well. We have no debt except for the mortgage and 1 car lease (3yrs).

Everytime we get paid every 2 weeks, we pay our bills, take out spending money and whatever is left we divide between the house and savings account. The amount we save each paycheck varies based on the bills or other extras that we have. We just do what we can. We are in no hurry so we don't stress it.

reddeezy

Thanks girl! I took a hard look at our spending habits this week and holy smokes we are being very wasteful when it comes to eating out. I am going to try and curb that bad habit. Obviously, once in awhile we will continue to enjoy a nice meal out but I want us to look at it more like a treat than an every day occurrence. I have a meeting with our financial advisor next week and plan on making some changes like increasing our contributions to TFSAs and RRSPs as well as increasing our money in the emergency fund.

I dont want to put on TTC longer than we need to and getting a better handle on our finances is our final step. Thanks agian for all of the advice. I am so glad taht I found this forum.

cbee817

The only debt we currently have is our mortgage (SL paid off in January 2013, both cars have been paid off since 2011). We refinanced to a 15 year mortgage with 4.0% interest in 2010 (Original loan was 30 years, 5.375%).

I contribute 9% to my 401K and get 1.5% match from my employer. DH is a state employee so he will get a state pension and contributes 4% of his income to a 403b (Me- 32, DH- 31).

We also have 2 girls in day care full time. This is estimated to cost us $19,500 for 2014. Right now, I put $5,000 into a dependent care FSA account (max allowed per family) in order to get a little bit of a tax break, but this is by far our largest expense for the next 2 years.

Once the girls are out of day care, I'll up my 401K contribution to 15%, DH will probably change his to 10%. We'll also start 529 plans for the girls- the goal is $250/paycheck for each of them. I would like to have $100,000 in there for each of them for college.

We have 14 months of expenses saved and we're hoping to be at 18 months saved by the end of 2014. It's mostly because I'm over cautious now that we have 2 children- if something happened to one or both of our jobs, I want their lives to remain as normal as possible.

To keep track of everything, we have an excel spreadsheet set up. One tab handles day to day transactions in our checking accounts/credit cards (that are paid off in full each month), and the other tab has a monthly view of the calendar year. It's nice to see what % of our take home pay goes to what and what we can do to cut back on certain expenses.

reddeezy

Wow. Amazing advice! Is it too invasive to ask how much each of you earn a year? I'm not sure of the decorum of this forum yet, but i"m only asking out of curiosity as to how to stretch your income so much!

vlagrl29

we are still trying to get our efund where we want it and then we plan on putting 10% of our income in our IRA's.  How much we make every year is so different because we are self employed and take a lot of deductions on taxes, but I would say it varies between 50,000-70,000/year (gross).

jessica490

jessica490 said:

H and I contribute 6-7% to our 401K's and have started increasing that every year and we are both 31. We have some catching up to do. We also have a house DP which has $18,000 in it and plan on moving in about 2 years. Our savings account has about $8500 right now but H just started school so we took from that. Our goal is to always have $20,000 in there so we are catching up on that as well. We have no debt except for the mortgage and 1 car lease (3yrs).

Everytime we get paid every 2 weeks, we pay our bills, take out spending money and whatever is left we divide between the house and savings account. The amount we save each paycheck varies based on the bills or other extras that we have. We just do what we can. We are in no hurry so we don't stress it.

H and I make about 87,000 combined

maple2

I contribute 15% to my 401k and get a 4% match. DH contributes 6% and gets a 9% match. We also max out our 401ks every year. DH required a lot of education for his job, so we are saving pretty aggressively for retirement to make up for his lack of savings earlier. We also spend a lot on childcare, so we don't save much besides retirement on a monthly basis. What we do save goes into a general savings account that we use for whatever short term things come up (e.g. Car repairs). Once the kids are out of daycare, we will start saving for long term house projects like a new roof, painting, etc, we will also reevaluate our college savings plans for the kids. We do have a 6 month e-fund in case of emergencies, so we are not completely without savings even though we aren't actively saving much now.

Sisugal

I would look at your current spending for non essentials and track them.  Then decide where and how much to cut back.  Dinner out - how often , new clothes, vacations etc..  I would not be too drastic with the first cuts or you will give up.  (Ex:  If you eat out 4 times a week - start with 3 times a week and then go to 2.) Vacations - how many do you take and how much do you spend?  Take them less often and make them less costly. (we take a "big vacation" once every 3 years and take short weekend get-aways or make family visits on the other years) .After you make the cuts - review the spending and then cut again until you are meeting your goals.
NEVER spend more than you take in and ALWAYS save from every paycheck.
Make sure you have at minimum 6 month's of expenses in an emergency fund.
Have a separate savings for future vehicle purchases so you do not need to finance.
Clothing - limit your wardrobe and pre plan purchases. Everything should be able to be worn with severral other items. (I do black, red and tan - everything mixes and matches - buy quality on sale or clearance -- and don't forget to check consignment shops as there are some great finds there).  Only shop when you are looking for something specific - stay out of the stores "just looking" as you will come home with something because it was cute, on sale etc that is not really needed.
Beauty - basic haircut- no color, highlights, massages.  You do not need a ton of makeup, skin creams etc.Find the few you like and stick with them only.
Exercise and eat healthy - it is an investment in yourself (and you look and feel better too!)
Pay off any credit card usage monthly - IN FULL EVERY MONTH.  If you cannot do that - then the purchase must wait.
Don't try to keep up with the latest - do it your own way.
Cutting back on entertainment and socializing - consider inviting friends to your home for a pot luck (and games/movie/talk).  Host provicdes main dish, other bring sides and deserts. Much less costly than going out. (Your friends may appreciate the savings as well).  Keep it simple and others may return the invitations in kind.
Set your priorities and then look to see if your money is reflecting them.