January savings plan

January is one of my favorite months because it is bonus month! That means there is quite a bit of money to stash in savings or investment accounts or into the mortgage principal. I should be able to lop off two of my 2013 goals with my January bonus! :)

1) Emergency fund: One of my goals for 2013 was to increase this to 12 months’ expenses. I came up with that number since I thought it was a reasonable estimate of 6 months’ expenses plus replacing all the appliances and my taxable investments. I’m modifying this to cover 6 months’ expenses and replacing all of the appliances in a cash savings account. That amount plus my taxable investments should come out to about 12 months’ expenses, so I’m calling it good.

How much do I estimate to replace all of the appliances? $9,300 from this post last January. I have no real idea how old the majority of the appliances are in my place, so I’m going to assume they could all fail at any time. That old list didn’t have a hot water heater on it, which I estimate at $1,000 for an energy-efficient one on Sears.com.

  • $1,000 dishwasher
  • $2,000 carpet
  • $1,400 fridge
  • $1,600 washer/dryer pair
  • $2,000 stove
  • $300 microwave
  • $1,000 hot water heater

This means that about $5,400 will go to my emergency fund.

2) Roth IRA: I have an estimate of what I can put in the front door (I did a sample run of my income taxes since the IRS forms are out, but I don’t have any tax forms yet), but I’m going to set aside the full $5,000 to cover the 2012 tax year contribution now, in a savings account, and then I’ll do both parts at the same time or throw the extra at the mortgage if I decide to not do the backdoor. (I’ll use a later bonus to fund my 2013 Roth IRA if I choose to do so.)

3) Mortgage pay down: What’s left of my bonus will go directly to the mortgage principal, plus the extra money from my monthly paycheck. I should be able to shave about 9 months off the mortgage with this month’s pre-payments. I have a couple of months forecasted for later in the year that should shave almost 2 years off of the mortgage in each go! Making pre-payments with the new mortgage doesn’t shave as much time off the mortgage as it did with the old one.

4) Save 50% of my net income: It looks like I am pretty much on track for this!

5) Save 100% of my RSUs: Definitely happening! See 1), 2), and 3) – I already have the whole bonus savings plan outlined.

I’m excited! I love what bonus months do to my net worth!!! :) How does January look for you guys?

36 thoughts on “January savings plan

  1. Gotta love bonuses! I got my in October and I deposited all of it into my brokerage account to buy dividend stocks ;)

    Looks like you are off and running to a fabulous start in 2013. Any more corporate bonuses lined up for the remainder of the year, or does the lump sum all arrive in January? Either way, looks like you sure know how to put it to good use!

    • So love bonuses! I should get a few more bonuses. This year’s payout schedule is quarterly ;) The last one will likely go to the 2013 Roth IRA and everything else from them at the mortgage. I’m going to be sad when I get no bonus payout in January next year – it’s a great start to the year!

    • FIF I like bonuses too!!! A lot! But currently all my bonuses go towards the debt and only regular savings from my salary goes towards investing, but soon I will be debt free (except mortgage) and then all my bonuses will go towards investments.

        • I do not want to use all money to pay off the debt and not create any investment accounts. I do not have time to afford not to do savings. Since my bonuses are quite large (so far) I decided to use those against my debt and smaller portion to use towards savings to have something.

        • @Martin, That seems like a good balance, dollar cost averaging into your investments and paying down the mortgage with some lump sums. I’m torn between investing and paying down the mortgage myself, but for now, maxing out my 401(k) and then paying down the mortgage is winning out. That may change as the mortgage balance decreases, or not since then payoff seems closer.

  2. One of us got a year end bonus that we put towards the mortgage. Yay. Other than that our January is blissfully uneventful money wise.

    That’s great that you get quarterly bonuses. How do you know already that you won’t get one next January?

    • Yay! It sounds like your mortgage is going down quite nicely as well :)

      My bonuses are paid out weirdly. They’re on a vesting schedule that is defined when they’re given out. So I already know the number of shares I will receive on each date this year. Starting next year, the vesting schedule will only be twice a year and not on a January schedule. The only way I could end up with January vesting again is if I take a leave of absence since unpaid time pushes vesting out.

  3. Its always good to be prepared to replace appliances, but I’ve got a question for you. What are chances of any two items failing within the same month?
    Id guess its not too likely, but its possible. Then if you look a the probability of 3, or 4 of your appliances all failing in the same month, the odds would get astronomical.
    If you look at it like that you could probably be safe with a smaller emergency budget. Of course its always goo to be a bit over prepared

    • It’s probably not all that likely, but my concern is that it looks like the majority of the appliances are 6-10-14 years old, which means that most of them could really die any day. My original plan had actually been to just leave my emergency fund at 6 months’ expenses and go along happily. I’m going to add this extra $5,400 and then see how I feel for a few months. If I feel it’s overkill, then I can throw some of it at the mortgage, which is the good thing about cash savings (flexibility).

  4. what a great way to start the year…its pretty quiet on the money front for me, unfortunately. trying to wrap up some past stuff this month that will hopefully give me a little financial boost if it goes as planned.

  5. Speaking from personal experience…the one appliance on this list you don’t want to wait to replace until it fails is the hot water heater. Because they almost always fail catastrophically. If I could go back in time I’d replace my hot water heater as soon as I purchased my house. It would have been worth every penny.

    Also make sure you have high-quality burst-proof hoses on your washing machine and dishwasher. A manual shutoff valve on the water line for each is extra credit.

    • Been there done that, have the water damage to prove it, on the dishwasher.

      We did replace our hot water heaters right after we moved in. One of them was showing signs of being about to fail catastrophically so we replaced both of them.

    • Thanks for the tips! I’ve actually been thinking about replacing the hot water heater because it is incredibly energy inefficient….I just don’t want to pull the plug if it’s going to last for many more years.

  6. Those sure are some nice bonuses that you get through work. I don’t get real bonuses yet but I do get a 15% discount on my employer’s stock. They just changed it so the shares are paid out quarterly so I can start selling them off every quarter starting next year instead of every 6 months. My first shares that are up for sale for full long-term capital gains treatment of everything starts in July. I’m looking forward to when I can sell those off so I can start diversifying my holdings more. It’s great that you have a plan for that money instead of how most people will go and just spend it all.

    • I can’t even think of how I would spend that much money! I also do all my calculations with a lower than current stock price, so usually I end up with a few thousand dollars more than I expected as well.

      Getting a discount on your employer’s stock seems like an interesting program as well. Good on you for making a plan to diversify your holdings more. What will you do with the sale of the shares?

  7. We do the same thing with our bonus checks, put them toward the principal to our mortgage. We don’t have any other debt and only believe in having a couple months in emergency funds on hand. By saving 50% of your net income you should set yourself up tremendously in terms of investing.

    • I have it split between my dividend rewards checking account and an online savings account right now. I also have some money in a total international stock index fund that would cover another 3-4 months of expenses, if necessary.

      • Leigh, “dividend rewards checking account” can you share what that is and with whom you have it? I haven’t heard about it and it sounds like this may be a better alternative to a regular savings account.

        • You’re probably not eligible to join my credit union, so I would investigate credit unions in your local area. I like having a bit of a buffer in my checking account, so this has worked out quite nicely for me.

        • Leigh, I did some research and what’s discouraging me was the requirement of 10 – 15 debit transactions in a month. So that doesn’t look like an option for me. In the meantime it looks like I will keep circa 2k in a savings account and remaining in dividend paying stocks. It seems like those are typically slow moving stocks so the principal depreciation in market sell-offs may not be that dramatic.

        • I currently have Ally savings and Sallie Maye’s savings accounts with 0.9 APY, but I was looking at accounts which can provide more than that, such as 3 – 5%. There are dividend savings accounts out there paying this rate, but the requirements do not work for me. But I will continue searching. For 0.75% it doesn’t make sense changing hands at this point.

        • @Martin, hah. My dividend rewards checking account doesn’t pay anywhere near 3-5%. In fact, the difference in interest between it and my Ally online savings account is < $100/year. It is probably not worth it to maintain the debit card transactions as I move to doing more of my spending with credit cards instead. I'll re-evaluate in another month or two.

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