Fall 2015 Financial Plan

As of my mid-September paycheck, I will finish contributing to my retirement accounts for the year. There will still be some dribbles of match from my employer each paycheck for the rest of the year. I estimate that I should have about $20,590 of money available for savings throughout the rest of the year. This comes from selling ESPP in October, my bonus at work, and my regular paychecks, including two months of paychecks with no Social Security tax, a $1,400 savings!

First, I plan to re-build my general savings account up to a year of non-travel expenses ($30,000). I need about $15,788 to do that.

Next, I want to top up my grad school savings account to cover my entire expected cost of grad school. $2,760.16 more is needed for that. I’ll probably top this up once I have $20,000 in my general savings account, in October.

That leaves $2,041.84 remaining and I plan to just put that into my general savings account since I’ll take my 2016 Roth IRA contribution out of there next year.

My fall finances are going to be pretty boring, just stuffing a bunch of money into savings accounts!

Note: As part of my project of reclaiming time for grad school starting this month and reducing my time spent on the details of my finances, I’m going to cut back on the net worth and spending updates. I will probably keep them up in some capacity, but not monthly like I have for the last several years.

Readers, what do you have planned with your money for the fall?

2015 Savings Plan

Now that I’ve started the new job and have a pretty good understanding of all of the benefits available to me, I finally sat down and made a savings plan for the year. I feel so much better having done this! Usually I do this in November/December, so it’s been stressing me out a bit to not have this already done and be so far into the year.

Reminder: Savings Goals

First, let’s check in with the vague savings/investments goals that I made for the year:

2) Contribute the maximum to all tax-advantaged accounts available to me. This means $5,500 in a Backdoor Roth IRA, $18,000 in a pre-tax 401(k) and possibly some additional funds to the after-tax 401(k) and possibly my 2016 Roth IRA amount in a savings account ready to deploy in January. This will account for probably about 2/3 of my savings in 2015.

6) Contribute enough to a Health Savings Account such that Out Of Pocket Maximum ~= Current HSA balance + Employer contribution + my contribution.

7) Succeed at Operation Bayes – I’ll explain this later.

9) Save 70% of my net income monthly…and 100% of my bonuses. (Yay for a big raise that will allow me to save that much of my monthly income!)

10) Contribute the maximum that I can to the Employee Stock Purchase Plan.

11) Pay down the mortgage with any funds that are leftover after 2), including the proceeds of 10).

Plan

I already contributed $5,500 to a Backdoor Roth IRA at the beginning of January, so that’s checked off for sure.

1 – 401(k)

I’ve figured out how to maximize the match on my new employer’s 401(k) and it’s pretty easy. I just have to average X% or more of contributions over the course of the year and I’ll get the full match throughout the year. Easy peasy! I’m going to contribute to the 401(k) evenly throughout the year though. It’s only 90% clear still what they’ll take the 401(k) deductions out of (not sure if it includes my signing bonus or not), so I set the contribution % assuming it includes my signing bonus and I’ll adjust it up later if it doesn’t.

My new employer does allow after-tax contributions to their 401(k) plan! There is a limit though that is less than the IRS limit and I plan to contribute their limit. I’ve set a % on this and if it doesn’t take any money out of my signing bonus, then I’ll increase it, just like with the pre-tax 401(k).

I also need to decide what to do with my old 401(k) and what I’m going to do with the after-tax 401(k) contributions, but I’m going to figure those out later. I still have some time to do that – it’s less urgent.

2 – Health Savings Account

My new employer contributes more generously to a Health Savings Account for me than my last employer did. I still have a small balance in my old Health Savings Account that I need to figure out what to do with. For now, I only want to have the balance in this account cover one year’s maximum outlay, so I set my contribution to meet that gap. I’ll re-evaluate this approach for next year.

3 – Employee Stock Purchase Plan

I’m pretty excited for this! I can contribute up to a certain % of my salary, then at the end of the offering period, the plan administrator buys shares of my employer’s stock at a discount to me! And the plan is pretty sweet in that I can sell the shares immediately with no holding period. I elected to contribute the maximum I can and I’ll use the proceeds from selling these shares to fund the next savings goal in my savings snowball, either cash savings or mortgage paydown.

4 – Cash savings

I’ve estimated how much Operation Bayes will cost if all goes according to plan and decided that I would like to have $60,000 in my savings to cover this and some cash reserves. This is the first item on my savings snowball, so I’m going to work towards this goal and then move back to mortgage paydown. If things don’t go according to plan, then the money here beyond my normal cash reserves will be re-purposed to mortgage paydown. It looks like I should meet this goal with using the ESPP proceeds sometime in July.

5 – Mortgage paydown

Last, but not least, I’ll continue to pay down the mortgage. It looks like this should get around $25,000 in 2015.

6 – Income allotment strategy

With the new job, I get paid twice a month instead of the once a month that I got paid with my last job for, oh, you know, the last forever since it was my only job post-college. This is super weird. My plan though is to continue living off of last month’s income like I guess I have been doing for the last five years, except that I get to earn interest on the mid-month income instead of my employer. I’m still figuring out the logistics of doing this. In a spreadsheet, I’ve portioned off my checking account into two accounts at the moment: buffer and cash flow. I’ll probably just add an income one and put the income as being deposited there until it’s “transferred” to cash flow / savings / mortgage at the end of the month.

7 – Overall

My current calculation shows that I’ll save about 79% of my net income this year! I think my spreadsheet might be a bit confused (I should fix that), but it’s definitely somewhere north of 75%, which is pretty awesome. Including my employer’s contributions to various accounts and expected market contributions, I expect the end of the year to look like:

  • $650,900 in overall net worth (a $119,300 increase)
  • $62,500 in savings (a $14,700 increase)
  • $230,100 in investments (a $65,600 increase)
  • $111,800 in mortgage balance (a $31,200 increase)
  • -$22,900 in taxable assets – debts (a $47,700 increase)
  • $495,700 until FI (a $349,300 decrease) *note to the naysayers: this is a target to shoot for and once I reach it, I’ll do some more exact calculations. Until then, I’m using a 4% SWR of my investments bucket, a paid off mortgage, and a rolling last 12 months’ of expenses to calculate my target.

How much cash to keep on hand?

This is a question that I’ve been really struggling with recently. As I’ve been strongly considering leaving my job in the last few months, I started being a little anxious about how much cash I had around and wanted to stockpile more cash, but then every month, I’ve also wanted to throw the extra money from my paycheck at the mortgage.

What do my liquid funds look like right now?

  1. $19,551.10 in savings ($300 at Chase and the rest at Ally)
  2. $10,172.00 in Series I Savings Bonds that are redeemable (if I redeem them in early September)
  3. just under $17,000 in taxable index funds at Vanguard
  4. total: ~$46,723.10

That is approximately one year’s expenses, maybe a little more or a little less depending on which twelve month period you look at. Yes, I can’t rely on the stock index funds being worth more than 50% of their current value, but that’s still a decent chunk of change. And I should stop forgetting about the Series I Savings Bonds because they were meant to be potentially long-term cash.

So then why, as I contemplate taking some time off between jobs, do I want to stockpile all of my extra money as cash over the next few months? I guess it would help, to a certain extent, to not have to replenish my savings after starting a new job, but especially if I get my second bonus for this year, I don’t need to stockpile all of the extra money as cash. Based on my current budget for the remainder of the year (October, November, and December since September’s spending is more than covered with my August paycheck), I should set aside an additional $9,381.65, or about three months’ spending. That seems much more reasonable to me than simply attempting to hoard all of my money, which was my going plan… And then, once I start a new job, if there is any extra money left in my savings account, I will throw the rest at the mortgage.

Readers, what strange financial habits do you have in times of stress?

Q1 2014 Update: Life and Finances

I’ve been pretty silent on this blog so far this year.

I spent most of my energy in the first quarter on work, getting involved in my new job and ramping up. Things are definitely going a lot smoother now and I no longer feel so new – a great feeling! After work, my energy went to cooking with my boyfriend. We’re still tweaking that, but we’ve definitely gotten to a really awesome place with our cooking! And I think we should settle in at around $300-350/month on groceries, which makes me feel a lot better than the first month’s $500.

The second quarter is going to be about finding myself again: getting back to the gym and finding myself (and us) a good routine. I paid for an annual unlimited membership at a gym in December. It’s an amazing gym: fitness and yoga classes, a full gym, and more for a pretty reasonable price. The caveat? It’s a 10 (ZERO traffic) to 35 minute drive, or about 25-30 minutes on average, and it’s always impossible to find parking. So sure, it’s a reasonable price and awesome once you get there and parked, but it’s not super convenient, so once I fell out of my gym routine with my injury in September, I just never got back into my routine. Now, I don’t think it’ll be a complete waste by the end of the year as its effective cost will probably come out close to buying punch cards throughout the year, but it’s still a good lesson.

Fitness

So, my project for this quarter is to re-acquire a fitness routine. I walk to/from work, which gives me about 5 miles of exercise per day, but that’s not enough for me to de-stress from work. I could never have a drive commute – even a bus commute stresses me out. I’m not good at motivating myself unless I have a commitment to a specific time / people, so running only works when I’m meeting friends, which leaves me with fitness classes. I identified several yoga studios and alternative fitness classes such as barre and cycling that are convenient to both work and home and have been trying them out. So far, I’ve tried one barre place, am on a week at a yoga place, and want to try out one more barre place. The first barre place I tried, though convenient to both work and home, wasn’t very me as it was super women-marketed. It’s still not bad for a weekend workout, but I’m hopeful that the barre place close to work will fit me better, though I wish it had yoga as well because then it would be basically perfect! I’m really loving this yoga studio I found!

You know what I hate about fitness places? Trying to decide which membership ‘package’ to buy! Do you buy a month? Three months? Monthly renewal? Annual renewal? 5? 10? 15? 20 class punch card? There are way too many options. Most places have a free session or week or some period of time, which is really great for seeing if it works for you without having to put up any money up front. The way I’ve always looked at these in the past is buying a membership equivalent to how long I want to commit to doing this thing.

Punch card at a place I feel like my friends will drag me back to once a week for a while and the punch card never expires? Go for it!

A place where I don’t know when I’ll return? A single visit.

A place where I feel like I can commit to going enough in the next month for it to be worth it over the longest punch card? Buy one month.

Oh, I enjoyed the first month? Maybe I’ll buy another month or three (depending on the place). After doing that for a few months, re-evaluate the commitment again and maybe buy a year.

It’s much easier to do make this evaluation when you’re just looking at one gym too. If you’re looking at multiple, a punch card is often the easiest commitment. By the end of this month, I’ll be looking at what I want to do going forward after evaluating all of these places.

Where is the budget coming from for these new fitness plans? I have been setting money aside each month to pay for an annual membership in December at my “old” gym aka sport #2, so there is $219 stashed there. There is also $199.76 stashed for sport #3 that I probably won’t end up doing this year. I also have $235 stashed for sports tournaments and with the injury last fall, I didn’t actually play in any! Lastly, I have $134.39 set aside for equipment because I’d been planning on buying something for sport #3 and some maintenance costs for sport #2. So I should be able to re-allocate that $788.15 somehow!

Finances

Okay, now back to what this was supposed to be…my first quarter financial update! So finances consist of income, saving, giving, and spending.

Income

I don’t have any bonuses in first quarter this year, so income chugged along as expected this quarter. I don’t know yet if I will get a raise this year or what it will be, but that would go into effect in April. I’m actually pretty convinced at this point that I will get no raise. Thankfully my bonuses are from prior year reviews and I only live off of about half of my regular pay, so the possibility of not getting a bonus won’t hit me very hard either.

I’ve had some troubles getting my W-2 allowances just right, but that’s always a work in progress, isn’t it?

I’ve been doing pretty well with credit card rewards so far. Between the Barclaycard Arrival bonus and the regular cashback rewards, I saw over $700 in credit card rewards in the first quarter. The Chase Freedom and Sapphire Preferred bonuses should hit next quarter, but things will probably slow down in that department for the rest of the year.

Saving

This is the easy part! In Q1, I saved 61% of my net pay.

My 401(k) contributions have been chugging along, as expected. Since I no longer have a high-deductible health insurance plan as of my April paycheck, I’m going to redirect part of that money to my 401(k) each month to max it out a little bit by the end of November instead of December.

I finished maxing out my Health Savings Account for the prior plan year and there’s a nice balance in there that I can still use for health expenses that I have to pay out of pocket!

I made my 2014 Backdoor Roth IRA contribution on January 2nd, so that is done already! I’m unsure about when I will do the 2015 contribution – I may wait until the mortgage is paid off, so I likely won’t set aside money to do that this year.

I’ve also been paying down the mortgage. So far this year, I’ve paid down $10,575.54, which is about 3.7% of the original mortgage balance. I can’t wait for my next bonus to hit – that’ll make a much bigger dent in the mortgage than I’ve been making so far with my regular paychecks.

Giving

I’ve never been very good at finding causes that I want to donate my money to. In December of last year, after a discussion on the comments on a post at nicoleandmaggie, I made a rash of extra donations. And this year, I am making a conscious effort to donate X% of my income. I’m sure that X% is a lot less than other people might do so in my situation, but I felt like it was a reasonable improvement over where I was. It’s kind of fun researching causes and donating larger chunks of money than what I was doing before too!

Spending

So, spending. I’ve spent a lot more this quarter than I had originally intended.

2014 Q1 Spending

I wasn’t expecting it to quite add up to $1,700 over my estimate. Oops! Some excuses/explanations:

  • Clothing: this was mostly because I found myself with very few items of clothing that fit in certain areas. There were some returns already in Q2, so this should look a little better at the end of Q2.
  • Woo for coming in basically right on on entertainment! Same with personal care!
  • On Food, I did really well on eating out by myself. We’re doing better with groceries now, so we’re going to alternate months instead of reconciling at the end, which means I’ll only have to pay one month next quarter. I have been eating out for lunch every day at work this year, which is part of why this is so high. I’m okay with that decision for now.
  • Housing is a bit under because I’ll pay property taxes next quarter and ‘household goods’ spending has been mostly squashed into groceries with the joint spending. I spent more on internet and electricity than estimated, but that should even out a bit more next quarter. And my mortgage payments and HOA dues were right on par. My property taxes did go up more than expected, so that will show up in next quarter’s report.
  • Medical – I estimated only spending on premiums. Oops – I forgot about bills from the injury in the fall.
  • Recreation – I spent nothing in Q1. There will definitely be more spending here in Q2.
  • Shopping – this one was a killer. I only budgeted for the closets and painting. I didn’t plan on repairing my laptop or buying a new case for my cell phone, but those at least came out of some building up line items. I didn’t plan on any of the general furnishings I bought or sales taxes on the painting estimate. Those all added up to almost $500, oops.
  • Transportation – this was awesome! I bought one tank of gas and paid some toll bills. I’m working on trying to lower my insurance costs so I don’t have a $1,360 cost come Q3. I think I might have found an insurance company that should cut that in half!
  • Travel – annual estimate was $4,000. I don’t anticipate going over $4,000 total for the year, so it should work out okay.

There you have it – I went over my estimate by an average of $600/month in Q1. I don’t feel bad about any of the spending. Q2 should be better – my estimate for now is that I’ll come in under $10,000 for the quarter.

Readers, how was your first quarter of 2014?

New savings goal: take a year off and get my MS full-time

I’ve spent a long time thinking about it and I’ve realized that I’m just not going to do an entire Master’s degree while working full-time. I can’t sustain that level of working for that long and focus on that many things at once. So, instead, I’ve decided to plan on taking a year off to get my MS (Master of Science) at a local university.

One of the things I’ve learned about myself is that I’m much more likely to do something when you take away many of the barriers, especially making it financially in reach. I wasn’t that interested in buying property until I had a ton of cash saved up that I didn’t know what to do with. Now that I’ve got the mortgage balance under $200,000, I’m going to work on saving up the entire cost of tuition for the Master’s degree and a year’s worth of bare bone living expenses, in addition to the $20,000 cash savings buffer I already have. If even with the money saved up to do this, I still don’t want to do it, then maybe I really don’t want to.

I calculated that I need to save about another $57,000 from what I have already started to set aside. In order to save this amount, I’m going to stop making extra payments on the mortgage and send all of my non-retirement account savings to this savings account. I am estimating that I will reach the goal by August to October of next year. If I change my mind and don’t end up going to grad school, I can always throw this money at the mortgage instead. Since I’m still considering this and saving money, I’m not going to consider applying for the 2014-2015 school year and will instead evaluate for the 2015-2016 school year.

What does a bare bones budget look like?

  • $1,205 Mortgage payment (still paying at least the payment on the original loan) – adjust down to the required amount of $1,027. I could also recast the mortgage for a cost of $100, which would lower the required payment to about $800. (savings in cash flow: $400)
  • $21.19 Cell phone – the bare minimum on Ting would be $18.21 per month (savings in cash flow: $3)
  • $31 Internet – this is the bare bones as this is the slowest speed of internet that they offer
  • HOA dues and property taxes – no bare bones version of this
  • $52 Electricity – monthly average. I’ve cut this down quite a bit, but I think I can continue to cut it down further.
  • $99/year ($8.25/month) Dropbox – paying for storage and sync’ing files between my computers. I would keep this.
  • $1,626/year ($135/month) Insurance policies (includes auto and condo policies) and renewing my vehicle tabs. This rate was shopped around for. I would do that again if it helped to lower the rate. There is no way to lower the cost of renewing the vehicle tabs other than to get rid of the car.
  • $163/month (average) Sports. I would eliminate all of these costs and spend time running and doing yoga at home.
  • $3/month (saving to spend) to replace driver’s license and passport as they expire
  • $250/month Entertainment: books, movies, food out with friends, etc. I would cut this down to $75/month since I also eliminated sports. (Savings on cash flow: $175)
  • $20/month Dining out by myself. I would cut this out completely and just count it in Entertainment if I do.
  • $170/month Groceries. I would increase this to $200/month to account for not eating out as much. (Savings on cash flow: $-30)
  • $65/month Work lunches out. I would eliminate this.
  • $42/month Presents. I would reduce this to about $17/month. (Savings on cash flow; $25)
  • $30/month (average) Household goods. This covers toilet paper, light bulbs, paper towels, Kleenex, batteries, laundry detergent, dryer sheets, dish soap, dishwasher detergent, bathroom cleaner, hand soap, etc. I’m still figuring out what this number should be, but this is about the average spent in 2013.
  • $20/month Eyebrows. I would cut this.
  • $6/month (average) Hair cuts. I would go to a hair school instead at a cost of $14/year or an average of $1/month. (Savings on cash flow: $5)
  • $20/month (average) Toiletries: hair elastics, toothpaste, feminine products, body wash, shampoo, conditioner, shaving cream, hand cream, etc.
  • $8/month (average) Spa. I would eliminate this since I don’t value it all that much.
  • $48/month (future spending) New electronics (cell phone, laptop, modem, purse, MP3 player). I would put off setting aside further money for these until the situation improved.
  • $48/month (average) Fuel for my car.
  • $5/month (average) Maintenance for my car.
  • $350/month (average) Travel. I would eliminate this.

My existing budget adds up to $3,221/month. The bare bones budget version would add up to $2,130, saving about $1,250 per month in cash flow.

Other options include:

1) Selling the furniture in the second bedroom and taking on a roommate. Approximate expense reduction per month: $800, reducing overall bare bones expenses to $1,330, which isn’t bad. That’s just under $16,000/year. This would really help because over half of my expenses in my bare bones budget is housing and because I own my condo, it is trickier to move. If worst came to worst, I could probably sell the condo and pocket about $160,000 in cash, which would help to cover rent later.

2) Selling my car. I could probably sell it for around $11,000, which would eliminate several costs (car insurance, renewing my vehicle tabs, and car maintenance). Technically it would also eliminate the fuel cost, but I would say that would cost just as much as taxis and car sharing would if I had no car. Savings on cash flow: possibly $115/month, but hard to tell based on how much taxis and car sharing would cost. The real advantage here would be gaining the $11,000 from selling the car. If I was in a real bind, I could sell the car and that would provide me another 5 months or so of expenses at the bare bones level.

Updated Savings Plan

Sitting down and looking at my projected savings numbers for this year as I was doing my tax return last weekend, I started to realize a bit the enormity of how much I should be able to save this year. Assuming that I don’t get a raise, my RSUs vest at a medium stock price, and I don’t itemize my taxes, I should be able to increase my net worth by $100,000 this year. If you use the 52-week high stock price for my RSU vests and add in a 3% raise and itemizing, that’s looking at closer to $115,000. These numbers absolutely astound me considering that only three years ago, my *gross* income was less than what I am estimating to increase my net worth by this year and I bought a new car in cash that year, so my net worth didn’t go up by much despite my income (~$22,300). And a year before that? I was in college.

Some crazy part of me just wanted to throw every last cent at the mortgage. But then I started looking at the numbers. Here’s what my plan was to save this year:

  • $17,500 Max out the Traditional 401(k)
  • $2,000 Max out Health Savings Account for the plan year (rest of the $3,250 will go in next year, in 2014)
  • ~$1,000 Roth IRA front door for 2012
  • $5,400 Emergency fund aka cash savings
  • $40,700 Five year mortgage pre-payment
  • $6,000 Mortgage principal from regular payment
  • $25,000 Extra savings (assuming no raise, RSUs vesting at a medium stock price and I take the standard deduction)

If I have $25,000 or so in extra savings room after accomplishing all of that, then maybe I should do the backdoor for the Roth IRA for 2012, since that’s giving up about ~$4,000 in tax-advantaged savings room, forever. I could end up working at a start-up with a bad retirement plan and wanting to roll over my old 401(k)s to a Vanguard Rollover IRA instead of into the new 401(k), so I might not have many years where I can do the backdoor Roth IRA contributions. That leaves me with $21,000 in extra savings. That’s still a lot of extra savings, so I started looking at my other options.

Buying Series I Savings Bonds from Treasury Direct is a bit of an appealing option when I see how much I’m paying in taxes now on the interest in my savings accounts and I could defer that interest until maturity (up to 30 years). The catch is that I don’t want to bunch up paying tax on their interest payments in a year with high income because then I could just be paying more in taxes than I would have to begin with. On the other hand, for now, they’re paying more in interest than my savings accounts are. I had been considering moving part of my emergency fund into CDs. One way to look at the i-bonds is that they’re a sort of 5 year CD with interest rates tied to inflation instead of stuck for 5 years.

I did a bunch of reading:

I’m also on the fence with my rewards checking account now that I have credit cards that have cashback/points. The rewards checking account was perfect back when it was paying me to do what I was already doing and even if I don’t make N debit card transactions per month, it’s not a bad checking account either since it has no fees. So my current plan is to buy $5,000 of i-bonds with the buffer I was keeping in my checking account, which doesn’t really affect the extra savings amount, come to think of it. I’m also going to give up on the rewards checking account starting in April – I’m already too far into it this month that I might as well keep going now. It’s going to be tight getting my N transactions in with my debit card by the end of the month, but I think I’ll make it by the end of the month. The cashback cards aren’t honestly that worthwhile either with how little I’m spending, but at least they’re rewarding me for what I would have been doing anyway.

These two changes have meant an adjustment in my asset allocations for the year. Very little, if any, of my 401(k) money will end up going to the Total International Stock Index fund. With the i-bond purchases, less of it needs to go to the stable value fund as well.

My target asset allocation at the end of 2013 will now be:

  • 31% S&P 500 Index
  • 6% Extended Market Index
  • 37% International Stocks
  • 26% Fixed Income (My age at the end of the year + the number of multiples of $100,000 I have in investments)

Based on this, let’s calculate my ideal portfolio at the end of 2013 and compare it to where my portfolio is now:

Current Ideal EOY Difference
S&P 500 $25,700 $36,921 $11,221
Extended Market $6,600 $7,146 $546
International Stocks $31,800 $44,067 $12,267
Fixed Income $19,500 $30,966 $11,466
total $83,600 $119,100 $35,500

I’ve updated my 401(k) contribution allocation as follows:

  • 74% Vanguard 500 Index fund
  • 15% Vanguard Total International Stock Index Fund
  • 11% Vanguard Retirement Savings Trust

Some more thoughts:

  • I’ll hit the five year mortgage pre-payment amount by sometime in July.
  • I’m going to wait until my last bonus of the year hits to make my non-deductible Traditional IRA contribution for 2013 and then I’ll convert the 2012 and 2013 amounts in one go. I’ve invested the 2012 amount in Vanguard Total International Stock Market Index Fund Investor Shares for now.
  • I’m not sure whether I’ll buy my remaining $5,000 in I Bonds for the year out of my savings account (counting it as moving that money into a 5 year CD) or buy them out of cash flow.
  • That still leaves another $20-35,000 in funds to save/invest.
  • At that level of savings, there are so many good options to choose from. I’m hesitant to invest money that I could throw at the mortgage in a vehicle that is neither tax-advantaged nor guarantees the principal. So I’ll most likely throw the majority of that extra savings at the mortgage this year, even though another part of me doesn’t want to wait until the mortgage is fully paid off to invest in index funds outside of my retirement accounts. I estimate that if I only make extra principal payments on the mortgage through the end of this year, I will not see a cashflow impact when the mortgage rate resets in 2018 since it’s effectively a recast to a higher interest rate.
  • One option I’m considering is to invest my Social Security tax break in the last half of the year (I’m estimating hitting the maximum income by July or August) and keep chugging along at the mortgage with the rest of my funds.
  • I’ve also contemplated buying Series EE Bonds, but I’m hesitant about the 20 year wait to get the “good” interest gains from them. I’m only in my mid-twenties – I can’t see twenty years into the future!

Savings plans are always a work in progress and I’m sure this won’t be the last time that I fidget with mine this year!

Readers, how is your 2013 savings plan going so far? Have you made any adjustments?

“Golden” Handcuffs

NTF wrote a great post on unlocking golden handcuffs. But what do you do when you’re living below your means, you’ve mostly avoided lifestyle inflation, you don’t have a car payment or high student loans, your mortgage is well-affordable, you don’t spend your bonuses, and you don’t really rely on your bonuses?

I’ve been at my company for long enough now that I’m vested in the 401(k) matching, I have great amounts of vacation time accrued, I have lots of deferred compensation waiting for me (projected to be almost 50% of my total compensation for 2013), and I have a good amount of seniority. I’m in a good spot. But there’s part of me that looks at what other companies are doing and I see cool things that other companies around are doing. When a recruiter emails me, I ponder the idea of leaving. When I decided I wanted a change in the fall, I made a promise to myself that I would try another team within my company at the very least until the first RSU vest in 2013, but really until the end of the year. I have a strong suspicion that my next employer won’t have as hearty of bonuses and without them, paying down the mortgage is a much slower process. I also wonder if my deferred compensation won’t be quite as hearty as it will be this year going forward. Then again, my employer is smart and would probably try to avoid that happening to try to keep me for longer.

I’m not addicting to spending; I’m addicted to saving. In a way, it’s the same thing. I’m addicted to the large sums of money coming in. The large bonuses are awesome. I don’t spend my time spending it, but figuring out the best way to stash it in accounts.

I’m trying really hard (I swear!) to spend less time thinking about money. I’m finding projects around the condo and doing those. There are still plenty of those I’ve been avoiding. My theory is that if I think about money less, I’ll be less interested in staying for the bonuses that aren’t mine yet.

My “golden” handcuffs come in the form of Restricted Stock Units (RSUs). I received a grant with my initial contract and then I’ve received more grants every year since with my review. Basically, the grant spells out a schedule of dates on which I get certain numbers of shares of my company’s stock. I sell them all immediately (TFB has a great post on this) because I would never in a million years buy that many shares of my employer’s stock, let alone a single individual stock. Right now, I’m sitting on over six figures in unvested shares. That means that if I leave my company, I don’t see those shares, ever.

Is being addicted to saving my bonuses just as bad as being addicted to spending them? Almost, but not quite. It definitely encourages me to try to change jobs within my company instead of going somewhere else. But is that a good thing forever? I’m not sure. At this point, my plan is to stay at my current company in some role through the mid-2015 for a variety of reasons. I should collect quite a bit of shiny RSUs in that timeframe and who knows what will happen after that!

Readers, have you ever gotten addicted to saving? I have a feeling that a few of you have as well :)