Financial Plan for 2014

Simple goals, simple implementation, right?

Income plan

The vast majority of my income comes from my W-2 day job. This is separated into regular salary, which is paid out monthly, and stock of which I will see two comparably sized vests this year. I am expecting my overall W-2 income (before deductions) to be somewhere between $160,000 and $200,000 for the 2014 year. This assumes a modest 2% increase and the 52 week low and 52 week high +20% stock prices for the RSUs. I anticipate my income surpassing the Social Security tax maximum ($117,000 in 2014) with my September or October paycheck.

My RSUs see a flat 25% of federal income tax deducted from them, which isn’t quite enough tax because my base pay alone takes me into the 28% federal income tax bracket these days, so I need to compensate for that with my W-4 allowances. My spreadsheet suggests that at this point in time, I should set zero (0) allowances on my W-4 for 2014. I will re-evaluate this after each RSU vest and raise.

Investment contributions

I plan to:

1) Contribute the 2014 maximum of $17,500 to my 401(k) for the year, spread out throughout the year:

  • H3 = annual base pay (gross)
  • J2 = Yearly max to the 401(k) – $17,500 for 2014
  • I2 = ROUNDUP(J2/H3,2) = the % that I should contribute monthly from my paycheck to max out the 401(k) over the course of the year, e.g. if it is XX.3%, I will set it to XX+1%. I will most likely reduce this by one percentage point for my April and subsequent paychecks.

2) Make my 2014 Roth IRA contribution of $5,500 through the backdoor on January 2nd, taking the funds from my savings account.

3) Continue contributing the maximum to my Health Savings Account until the plan year ends partway through 2014. I will then re-evaluate health insurance plans and whether I will contribute to the Health Savings Account again (depends on which plan works out the best).

4) Set aside my 2015 Roth IRA contribution from my final RSU vest for the 2014 year in a savings account. This will probably either be $5,500 or $6,000.

Mortgage plan

All funds that are not set aside for spending, my 401(k), my Health Savings Account, or my Roth IRA will be thrown at the mortgage. My estimate is that this should be around $2,500/month on average, plus RSU vests.

Investment allocations

This exercise is similar to what I did for 2013. As of 12/12/2013, my investments portfolio is worth ~$130,700. I estimate adding about $25,000 to the portfolio this year, including my 401(k) contributions, my employer match, and my Roth IRA contribution, putting an estimated year end balance at $156,000.

(Note: when I wrote this post last year, I estimated that my end of year balance would be $98,100. It is $34,600 higher than that as of November 30th. Crazy!)

My target asset allocation at the end of 2014 will be:

  • 27% Fixed income
  • 36.5% US stocks
  • 36.5% International stocks

Based on this, let’s calculate my ideal portfolio at the end of 2014 and compare it to where my portfolio is now:

Current Ideal EOY Difference
US stocks $48,500 $56,945 $8,422
International Stocks $47,900 $56,945 $9,073
Fixed Income $34,400 $42,124 $7,773
total $130,700 $156,000 $25,268

I will add my $5,500 Roth IRA contribution to the Vanguard Total Stock Market Index Fund Admiral Shares, which means I only need to add another $2,922 to US stocks for the year. Subtracting out my 401(k) match from there leaves my 401(k) contributions as follows for the year:

  • 4% or $654 to add to US stocks (S&P 500 index fund)
  • 52% or $9,073 to add to international stocks (total international index fund)
  • 44% or $7,773 to add to fixed income (stable value fund)

There, we can set and forget for the rest of the year!

I will re-balance the Extended Market index fund vs S&P 500 index fund amounts in January 2015 when I make my Roth IRA contribution for that year – for now, I just care about US vs international vs fixed income.

Banking plan

I’m going to have my entire pay direct deposited to my credit union checking account and then pay the mortgage from there with the leftovers each month. My credit cards are all on auto-pay from here and all of my bills are on auto-pay to a credit card.

I will continue to withdraw any health expenses from my HSA after putting them on a rewards credit card through the end of this plan year. I will re-evaluate my HSA plans during open enrollment.

My plan for expenses is as follows:

  1. If purchase is in person and < $15, use debit card until I reach N transactions. This should earn me just under $200 in interest for the year, i.e. meets my $100 gain for the year rule.
  2. All Amazon.com purchases go on that credit card (this is mostly automatic, so no big deal), as well as restaurants and in-person places that don’t take American Express.
  3. All non-foreign purchases that take American Express go on the Fidelity Amex card
  4. All other purchases (including possibly foreign ones) go on the credit union cashback visa (I love this one because it does automatic redemption every month, no matter the amount!)

This algorithm should net me about $400-550 in cashback rewards for the year, based on 2013 spending levels.

Based on my spending patterns and my rule that I will only add a credit card if it will gain me at least an additional $100/year in cashback rewards and I think I could use the card effectively for at least two years, I can’t really optimize any further than this. I could add the US Bank Cash+ Visa Signature card for 5% cashback on restaurants, but with my spending levels, that may or may not actually make any sense. My credit history is still new enough at this point that I don’t want to churn yet (under 4 years), but I will re-evaluate that in 2015.

I’m really enjoying how simple this plan is and I can’t wait to let it be implemented! Here’s to an awesome 2014!

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  1. #1 by Elroy on December 19, 2013 - 2:37 pm

    One may argue you might be a little heavy in fixed income for your age. I thought I was pretty conservative being 30 and having 18-20% fixed income. Otherwise, it seems like a good plan!

    • #2 by Leigh on December 20, 2013 - 8:02 am

      Really? I’ve been using a modified version of age in bonds where I add an extra percentage point in fixed income for every $100,000 I have invested. The way I looked at it was that since I’ve saved so much at 25, I don’t need to risk as much.

  2. #3 by lala on December 21, 2013 - 10:00 am

    Hi Leigh, love reading your plans and perspectives here. Would you mind explaining the contribution to Roth IRA through the backdoor? How exactly do you implement this? I would like to do this for 2013 and then again for 2014. I am not far from you in income, and thus, am not sure how I could contribute to a Roth IRA.

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