Notice how in my blog’s title it doesn’t say anything about financial independence or retirement? My goal isn’t to retire early. I’m not against having the funds to do so, but that isn’t my goal per se.
My real goal is balance:
- A home I enjoy
- A sense of community, possibly including a healthy romantic relationship
- A way of being intellectually stimulated on a regular basis, possibly with a career
- A good level of fitness
- A way of providing for myself financially, whether that is through paid work or investments
On my home
As I’ve talked about many times, I absolutely love my condo. I love the location, the rooms, and everything about it. This home really does make me happy.
I am incredibly happy with my boyfriend. We have actually been friends since college, which is a pretty awesome way to start a relationship. He accepts me for who I am and I accept him for who he is. I’ve also gotten the go ahead to ease back into playing sports, which I would have been far more excited about if I hadn’t also caught a cold around the same time. I think that’s finally gone now :)
On intellectual stimulation
As you guys have probably deduced from some of my posts lately, I haven’t really been happy in my current job. I’ve spent quite a bit of time introspecting on what I like and dislike about my job and what I would change about it if I could. I eventually realized that I couldn’t change my current job into a job I would like and started the process of 8 am and 5 pm coffees to find a new job. I talked to many groups within my company and ended up choosing a job with the first group I talked to. I’m excited about the manager, the product the group is working on and the part of the product they’re working on, as well as the opportunities for growth there, and my future coworkers seem pretty cool too. Once I accepted the new job, I felt a huge relief to have that stress off my shoulders. I’ll be starting the new job in the new year and taking a bit of time off between jobs, so I don’t have much time left at my current job. It’s hard to focus when I know I’m leaving and I’m excited about my new job!
I love walking places instead of driving. It is not only less stressful
My plan was always to save the residual. I never set out to save 50% of my income. I set out to spend the money I wanted to spend and then save the rest since there’s no reason to spend money I don’t want to.
For people who are naturally savers, I think that saving the residual is actually a better way to go about things than saving first. For people who are naturally spenders, I think that saving first is probably better. (I wouldn’t really know though since I’m more naturally a saver.)
Since I stopped paying Social Security tax with my July paycheck, I’ve been saving about $3,000/month AFTER maxing out my 401(k) and HSA and on top of saving all of my bonuses. But my spending plan also calls for spending ~$3,400/month if you include the mortgage. I don’t think that you can really call me all that frugal anymore when you add all of my expenses up. $3,400/month to spend for a single person is a LOT of money. But then when you look at the fact that I’m saving close to 80% of my net income, it no longer seems like a lot. I am on track to increase my net worth by about $135,000 this year. That means I had $135,000 (*figure includes investment gains) in income that I saw no reason to spend.
If you look at my budget, there is a ton of lifestyle inflation. I live by myself and spend about $1,700/month on housing when you throw in all utilities. I spend ~$4,000/year on travel. I eat out a fair amount – upwards of $200/month worth. I spend $100/month on sports and fitness. But, other than all the moving last year, I have been reasonably consistent in my spending since graduating from college. So it’s not like my lifestyle has increased with my income increases (which have been pretty significant!) I will come close to my 2011 spending this year.
I don’t coupon. I don’t hound myself for spending so long as I enjoy the thing I spent my money on. I think I’ve finally found my balance with my finances.
I’ve been keeping track of my credit card spending in a Google doc and otherwise not checking on things other than to enter receipts into my overall spreadsheet once a week and reconcile with my bank accounts once a month. Everything is on auto-pay and it is surprisingly awesome.
On retiring early
Most people who retire early find some other way to occupy their daytime hours, often with self-employment. As I’ve learned from the last few months of boredom at work, I am not someone who could sit around doing nothing. I will always find some activity to keep my mind and body active. I’m most happy when I’m reasonably busy. That’s even when my apartment is the cleanest! Perhaps at some point, I will find a career that I enjoy more than writing software and transition to that or take an extended sabbatical to travel or something similar, but that is not my intention now or in the near future. I’m simply saving my large residual of money after enjoying my life, to provide myself with some more options down the road when I do want them.
I’m going to continue to save the residual and to enjoy my life while hopefully also enjoying and kicking butt at my new job!
|assets – debts
This month was pretty good financially! My huge 401(k) contribution from my October paycheck posted, as well as a good-sized bonus. My spending was also average for the year. I used the bonus to contribute the maximum for 2013 to my Roth IRA through the backdoor, to set aside my 2014 Roth IRA contribution, and to pay down the mortgage. The almost $30,000 net worth increase this month is my new record.
That gap between monetary assets and debts has narrowed quite a bit this year! I’m expecting that to be in positive territory around January to March 2014 and then I’ll start tracking the gap between my taxable assets and debts since when that goes to zero, I could technically pay off the mortgage with the taxable assets.
Expenses: I spent $2,400 in November. That puts 2013 so far at $29,030 or an average of $2,639/month. This would project forward to $31,669. I’m now past my stretch ($24,000) goal and will very likely surpass my target ($30,000) goal in December. However, as of the end of November, I have spent $11,600 less than in 2012, so I should still beat my 2012 spending by a fair margin. It looks like I will surpass my 2011 spending though as I’m only $500 behind it.
Some of my controllable expenses broke down as follows:
- $840 Clothing (two pairs pants, five sweaters, several bras)
- $254 Entertainment/Social ($205 average this year): 20% cash withdrawals, 15% books, 22% meals out with my boyfriend, 36% dinners out with friends, 8% concerts and TV shows
- $0 Eating out by myself ($26 average this year)
- $145 Groceries ($155 average this year)
- $57 Work lunches ($75 average this year, $171 average last year)
- $99 Presents
- $11 Cell phone (buying SIM card for the Nexus 5)
- $31 Internet
- $22 Household goods (dishwasher detergent, bathroom cleaner, microfiber cloths)
- $21 Medical (waiting on about $800 of bills)
- $20 Eyebrows
- $92 Toiletries (some over-the-counter injury related purchases, hair dryer, razors, handwashing soap)
- $430 Furnishings (recycling bin, way to lock up my bike in my parking spot, Christmas tree, tinsel, new fitted sheet)
- $52 Fuel ($34 average this year so far, $38 average last year)
- $60 Out of pocket parking at work / parking meters
- $135 Taxis to/from work
- +Work parking reimbursement from October
I’ve separated out my dinners with my boyfriend from my regular social eating. It’s still being lumped into Entertainment, but at least I can see the data later now.
November started out being a pretty good month for spending and then got worse near the end. About 1/3 of the spending was in the first half of the month and the other 2/3 was in the second half of the month. Overall it turned out to be an average month. The Clothing spending looks a lot worse than it really is because I do my bra shopping online and when I return the ones that don’t fit, I will get that money back.
I was pretty excited for the Christmas tree :) It’s a good size and in my living room! So nice to know that I will be able to use this same tree for many years to come and I can just store it down in my storage unit over the spring/summer/fall.
I’m going to start taking the bus to/from work instead of driving/cabbing, which will free up some money.
Savings: $27,600 (up $3,700)
These funds are spread across a Chase savings account (opening bonus!), a general online savings account, a checking account that gets free ATM fees anywhere in the world, a condo furnishing sinking fund, and my health savings account.
The change here comes from:
- Spending down some of the condo furnishing sinking fund
- Transferring the tuition fund to the mortgage
- Paycheck contributions to my health savings account
- Setting aside $5,500 for my 2014 Roth IRA contribution
Investments: $132,700 (up $11,400 or +9.4%)
This includes my Roth and Traditional 401(k), my 401(k) employer matching (fully vested!), my Roth IRA, my taxable investments including stock index funds and Series I Savings Bonds.
The change here comes from:
- 401(k) contribution from my October paycheck, including employer matching
- Contributing the maximum to my Roth IRA for 2013 through the back door
- Modest market increases
Mortgage: $192,100 (down $9,000 or -4.5%)
My mortgage is a 5/1 ARM at 2.5%. Before the refinance, it would have been paid off November 1, 2038.
I paid just enough on November 1st to bring the balance to round under $200,000. Next, I cleared out the tuition fund savings account and threw that at the mortgage since I’m going to pay off the mortgage first. Lastly, I threw the rest of my bonus at the mortgage once I’d maxed out my Roth IRA for the year and set aside the funds to make the 2014 contribution. Now that the balance is under $200,000, it really feels like it’s going somewhere soon. I can’t wait to pay it off!
I estimate with the extra principal payments in November that the payoff date is now at September 1, 2033. I shaved 7 months of payments off with this month’s pre-payments! And I’ll save about $16 in interest on the December 1st payment based on these pre-payments.
The mortgage balance is so far ahead of where it needs to be by the end of 2013 to stay on track with the five year pay-off plan that I’ve adjusted the plan to pay it off by the end of 2015 or two more years. I’m currently about $11,200 behind where I need to have it at the end of 2013 to stay on the two more year payoff plan. I have now paid down 32.8% of the original mortgage balance and am getting so close to 50% in equity! (I have $13,350 more in mortgage principal payments to go before I have 50% in equity.)
TOTAL: $340,200 (up $29,800 or +9.6%)
I ended 2012 with a net worth of $211,300, so I’ve seen a change of $128,900 or +61.0% so far this year. (For reference: my net worth increased by $78,800 in all of 2012.) I surpassed the original y-axis on this graph of $315,000 in November, so I increased it to $350,000. I am currently projecting to get very close to $350,000 by the end of the year, for a total yearly increase of about $135,000.
Lastly, to check in on the goals I made at the end of October:
- Read books! SUCCESS! I’m not sure exactly how many books I read, but I definitely went through at least one or two.
- Go back to the doctor again. SUCCESS! I’m not fully healed, but I’m doing a LOT better. I had more tests done and I’ve been going to physical therapy. I hit the deductible on my health insurance plan, which isn’t so bad because I still have another four months left on the year and now I’m only paying 10% of the cost :)
- Finalize the work thing I was introspecting about. SUCCESS! It’s not 100% official, but I would say it’s about 95% official at this point. I’ll talk about what I ended up doing once it is 110% official.
- Make my Roth IRA contribution for 2013 and re-balance accordingly. SUCCESS!
- Set aside the rest of my bonus and paycheck for my tuition fund. PASS! I ended up setting it aside for the 2013 and 2014 Roth IRA contributions and the mortgage instead.
- Start Christmas shopping. (Ugh, I hate buying presents.) SUCCESS! I bought presents for my boyfriend, my sibling and SO, and part of the presents for my parents. Now I just need to finish the rest of my parents’ presents and I’ll be done!
Now for some goals for December:
- Finalize the work thing 110%.
- Read 3 books.
- Follow the directions of the physical therapist.
- Make a plan for my time off at Christmas – I possibly only have 15 working days in December :)
- Set goals for 2014!
My investments have been mostly plodding along this year. Occasionally, I have adjusted how much of my 401(k) contribution went to what (S&P 500 index, total international index, and stable value fund) and then left it alone again. For example, my September and October contributions went about 50/50 to the stable value fund and the total international index because the US stock markets had been doing so well.
But now that it is time to make my 2013 Roth IRA contribution, I am going to re-balance by exchanging some funds around. Back in May, I wrote a post on Tax-Efficient Investment Placement Over Time, which I have referenced so many times that I should really bookmark it.
First, what are the balances in my various accounts?
- $23,600 Roth IRA (with $5,500 new contribution)
- $8,200 Old tax-deferred CDs
- $10,100 Series I Savings Bonds
- $15,700 Taxable account
- $74,500 401(k)
- $132,000 Total investments
What is my asset allocation?
If we follow my ordering from my post on tax-efficient investment placement, what does that ideal portfolio look like?
- My employer match to the company stock
- Series I Savings Bonds that already exist in taxable
- CDs that are already in my Roth IRA
- The remaining portion of my fixed income allocation to the stable value fund in my 401(k).
- (not necessary)
As much of my remaining fixed income allocation to Total Bond Market in my Roth IRA as possible
- (not necessary)
If my tax-advantaged balances weren’t enough for all the fixed income necessary, added $10,000 in Series I Savings Bonds (possibly early for future-proofing)
- (not necessary)
Any other fixed income went to a tax-exempt bond fund in taxable. As much of my international allocation in taxable as it allowed (in the first few years, my entire taxable balance; in later years, the entire international allocation)
- Next, I added any of the remaining international allocation into my 401(k).
- The remaining 401(k) funds went to the S&P 500 index fund. Call this amount X.
- (X/0.8)-X is how much I put into the Extended Market index fund in my Roth IRA (minimum of $3,000).
- The remaining Roth IRA funds went to Total Stock Market.
- (not necessary)
The remaining taxable funds went to Total Stock Market.
|Taxable||Total international stock index (admiral shares!)||$15,700||$15,700||(same)|
|401(k)||Total international stock index||$22,100||$33,200||+$11,100|
|401(k)||S&P 500 index + employer stock||$38,000||$25,300||-$12,700|
|Roth IRA||Extended Market index fund||$8,400||$6,300||-$2,100|
|Roth IRA||Total international stock index||$9,700||$0||-$9,700|
|Roth IRA||Total Stock Market index fund (admiral shares -soon!)||$5,500||$17,300||+$11,800|
Note that these numbers are all rounded, so they may be slightly off if you try to make calculations with them, but they should still illustrate my example sufficiently.
The main thing here is that I’m moving my Roth IRA from being mostly Total International Stock Market index (TISM) with a bit of Extended Market index to being mostly Total Stock Market Index (TSM) with a smaller amount of Extended Market. I’m also going to exchange all of my company stock into the S&P 500 index fund to diversify better. (So many people don’t know you can do this!)
I’ll perform a few transactions to accomplish this:
- Contribute $5,500 to the money market account in my Traditional IRA. – done!
- Convert the $5,500 from my Traditional IRA into the total stock market index fund in my Roth IRA once the funds settle. – done!
- In my 401(k), exchange all of the company stock money to the S&P 500 index fund.
- Next in my 401(k), exchange ($11,100 – company stock money = $12,700) from the S&P 500 index fund to $1,700 in the stable value fund and $11,000 in the total international stock index fund.
- In my Roth IRA, exchange $2,000 from the extended market index fund and the entirety of the total international stock index fund into the total stock market index fund.
And that’ll be the last re-balance I make by exchanging until early 2015 when I make my Roth IRA contribution for 2015 – all other rebalancing will be done by adjusting which funds in my 401(k) get how much of my contribution each month.
Happy Friday, all!
So back in open enrollment time for me early this year, I had a few health insurance plans to choose from: an HMO (an in-network only plan), a PPO (a combined network plan with a low deductible), an HRA (medium deductible and employer covers half of it), and an HDHP (high deductible plan with an HSA, which employer contributes some to).
Most of my friends have gone with the HDHP or HRA plans because “they’re healthy and only ever go to the doctor for a physical (if that)”. Seriously, the only guys I know who have ever used their health insurance had major sports injuries. What is it with twenty something guys and not using their health insurance??
Well, I seem to always end up with some reason to use my health insurance:
- ~$1,445 total: Minor issue ($335 two doctor’s visits, two prescriptions), talk therapy ($870 referral visit and then visits with therapist), and birth control ($240)
- ~$2,445 total: Birth control ($1,000), doctor’s visits ($365), talk therapy ($650), tests from annual check-up ($430)
- ~$1,965 total: Birth control ($1,365), doctor’s visits and tests ($200), talk therapy ($400)
- ~$3,525 total: Birth control (free!), talk therapy ($175), minor issue ($150 doctor’s visit and prescription), injury in September (total ~$3,200: $65 urgent care and x-rays while traveling, $160 my home doctor and tests, $290 specialist and tests, $1,200 specialist again and more tests, $80 specialist again, $1,400 estimate for physical therapy)
Note: these are the costs before my deductible / coinsurance / out of pocket maximum / co-pays kicked in. I didn’t actually pay anywhere near these amounts!
I thought this year was going to have no costs and it turned into my most expensive year yet for medical costs! And it’s not even over yet! I still have another 4 months to go. All of the times I’ve gone to the doctor were completely legitimate reasons to go. Do guys just not have reasons to go to the doctor? I don’t get that. Life happens.
In all of these years, the HDHP would have been the cheapest. Why? Because I’m only going to put as much money into a FSA as I know I’m going to spend since it’s use-it-or-lose-it. So in the past, I assumed I was paying for birth control and that was it and put enough into my FSA (Flexible Spending Account) to cover that, but I’ve almost always gone over and then paid for those costs with post-tax money. With the HDHP, however, I decided to contribute the maximum to the Health Savings Account. I’ve been using the account to pay for my out of pocket health costs, which has been amazing. None of the costs this year were expected. I’ve been withdrawing money out of the HSA like no tomorrow, but now that I’ve hit the deductible, that is definitely slowing down. I will most likely still have some money left in the HSA, which will leave a buffer for next year. My plan with the HSA was always to withdraw money to cover the expenses that I do incur and let the rest accumulate. I just hadn’t anticipated this amount of expenses! I may consider investing it once I have accumulated two full years of my out of pocket maximum ($6,000) as a buffer.
Why is the HDHP so much cheaper than the others? There are multiple reasons that make this plan so attractive:
- The difference in premiums between the HRA plan and the HMO plan is about equal to my portion of the deductible.
- After I hit the deductible with the HRA plan or the HDHP, I pay 10% of the cost of everything until I hit my out of pocket maximum. The HMO plan has no out of pocket maximum. You just keep paying.
- From all of the data that I’ve seen, 10% is almost always cheaper than the co-pay. The specialists I’ve seen so far have ranged in cost from $80 to $205. 10% of that range is $8 to $20. My co-pay with the HMO plan for seeing a specialist is more than $20. Seeing my doctor costs me about $145 or $14.50 if I’m only paying 10%, but the co-pay with the HMO plan is more than $15.
- With the HRA plan and the HDHP, prescription costs count towards both your deductible and your out of pocket maximum. This was really great when I had the expensive birth control prescription. (Prescriptions have co-pays that can add up forever with the HMO and PPO plans.)
- The premiums are the same on the HRA plan and the HDHP, but the HDHP gives me access to a HSA with great investment options.
When all is said and done, my after tax cost for health costs this plan year should come out to just under $600. (My premiums are incredibly cheap, but I’m also in a somewhat high tax bracket*.) The HMO plan would have cost me just over double that figure. So despite having over $3,500 in medical costs for the year, my HDHP wins out. I’m now wishing I’d picked the HDHP last year as well because it would have been cheaper and then I would now have more money in an HSA. Ah well, I now know!
Note: The math on your particular plans may be different, but I do encourage you to at least investigate! So many people are scared of the high deductible plans, but they can sometimes be cheaper, even with a ton of health costs. I actually am less scared of my health costs since my high deductible plan has an out of pocket maximum and the no/low deductible plans don’t.
* I am so close to the 33% tax bracket that I can (almost) taste it! It’s kind of cool to realize how close I am, but not actually be there since then I’m still “only” paying 28% as my marginal tax rate.
NOTE: Based on Bichon Frise’s comments and some research on Publication 590 from the irs.gov website, as well as the link to fairmark.com in the comments from Bichon Frise, I’ve decided to make my 2014 Backdoor Roth IRA contribution at the very beginning of 2014. Since it’s so late in 2013 already, I’m going to continue with my existing plan for my 2013 contribution. You’ll see an update on both of these in one of my remaining net worth updates for the year. I’m still leaving the content of the post here because I feel that my concerns and wonderings are still valid. Just please read the first few comments as well.
Many people who can make the maximum contribution to their Roth IRA at the very beginning of the year, in January. Some people even make a game (?) of trying to do this as early as possible in the year. Me? I try to do this as close to the end of the year as possible. I’m not against setting aside the cash to make the contribution throughout the year so that I could technically do it at any point.
Why do I do this? Well if you read line 6 on form 8606, you need to enter the value of all your traditional, SEP, and SIMPLE IRAs as of December 31, 2013. I want to be confident that there will be no money in a traditional IRA at the end of the year before I make the Roth IRA contribution when I’m making it through the back door. Why?
My employer charges a fee to keep money in my 401(k) once I’m no longer an employee. The difference in expense ratios between admiral shares and what I can get through my employer is not worth paying this fee, so I plan to roll my 401(k) into a Rollover IRA or the next employer’s 401(k) as soon as the plan administrator will let me. I don’t want to be caught with having money in a Traditional IRA at the end of the year, so I’d rather wait on making the Roth IRA contribution. If the new employer doesn’t let me contribute to the 401(k) for some period of time or their plan isn’t as good as admiral shares at Vanguard, I would rather use the Rollover IRA, even though it would make me ineligible for a Backdoor Roth IRA that year.
With the current balance in my 401(k), most of my conversions from Roth IRA to Traditional IRA would have been taxable, which would be expensive in my 28% bracket. That would be approximately a $2,500 mistake. I’d rather pay the fee to leave money in my 401(k) than the income tax on the conversion. Honestly, looking at form 8606 now, I should have waited until the end of the year to make the conversion from Traditional to Roth on my 2012 contribution. Or I should have just made it in 2012 itself.
In conclusion: my assumption that some day I will have a Rollover IRA instead of a 401(k) is also part of why I am doing the Backdoor Roth IRA for now, even though I was originally against it. Since I hit the income cap for direct Roth IRA contributions so young (at 24), I would like to build up some Roth space while it’s still possible. I’m hopeful that I will at least get to contribute to a Roth IRA through the backdoor this year, in 2014, and in 2015, which would give me $35,000 to $40,000 in the account. My Roth account will almost always be dwarfed by my eventual Traditional IRA from my 401(k) and my taxable account, but it’s still valuable space to have, to diversify on future taxes, especially since I otherwise would have invested the money in a fully taxed investment account.
Readers, when do you make your Roth IRA contribution for the year?
In July of 2012, sixteen months ago, I wrote a post outlining my plan to pay off my mortgage in five years, before the ARM rate resets.
On that schedule, the balances needed to look like this:
Well, the balance today is around $198,200, about $11,000 ahead of where the balance needs to be at the end of this year to stay on the original five year pay-off plan. The balance at the end of 2012 was around $259,600, which was about $4,000 ahead of that year’s required balance.
I am now amending my mortgage pay-off plan to pay it off by the end of 2015, slightly over two years from now and 3.5 years into the mortgage. The modified balance schedule is as follows:
I think that this is slightly aggressive, but it is quite possible. My current income projections put the balance at just under $180,000 at the end of this year, at around $100,000 at the end of 2014, and around $20,000 to $30,000 at the end of 2015, which means I need to come up with up to an extra $10,000 on top of my $20,000 savings account to pay the mortgage off by the end of 2015. I will re-evaluate the plan again in June/July of 2014 and then at the end of 2014.
What will I do after the mortgage is paid off? What about my idea to go to grad school? Well, in the fall of 2015, I will evaluate whether I want to go to grad school or keep working and if I want to go to grad school, then all of my savings from after the mortgage is paid off will go to online savings accounts to cover that. If I decide to not go to grad school, then I will build up a $20,000 general savings account again, then set aside 1/5th of the money to buy a new car in 2020 and stash money in taxable investment accounts since I’m already maxing out my available tax-advantaged retirement accounts.
When I bought my car three years ago, its three year warranty came with roadside assistance anywhere in North America! That seemed like a pretty sweet perk at the time, being a 22 year old who knew (and knows…) very little about cars, just bought a brand-new car, and planned on driving most of her miles on long stretches of the highway to visit family. Well, guess what? That policy is expiring soon! And I’ve been debating what to do about it. The way I see it, I have several options:
1) Car insurance: Add this as an additional benefit/cost on my car insurance policy. I investigated this and it would cost $30/year.
2) AAA: Buy a AAA membership. The classic membership would cost me $56/year and would get me free towing up to 5 miles. For free towing up to 100 miles, it would cost $89/year.
3) Credit card benefit: Investigate my existing credit cards for if they have a roadside assistance benefit and if not, apply for a new credit card with no annual fee that does. None of my existing credit cards have this benefit and I don’t want to get another credit card just for this.
4) Go without: This is the catch-all, take no action option.
After much consideration over the last few months, I am opting for the last option, do nothing. Why? In the last three years, nothing has happened to my car. It also seems fairly unlikely. I have a smartphone, with which I could look up the phone number of a local towing company wherever I am and call them or if I have no data service, call a friend who has internet access to look one up and then I can call that number.
Readers, do you have a roadside assistance policy? If so, how often have you used it?