New Job & Raise - More Savings?
I was pleased to receive the first paycheck from my new promotion today. I'm bringing home about $250 more per pay period (2-weeks) which represents a nice increase. Beyond that I will receive a quarterly incentive package as well assuming our company makes revenue targets.
With my wife in grad school I am the only income channel so we've had to significantly cut costs over the last few years. Despite that effort we were still burning through approx. twice my income. We live in the NY metro area and rents, insurance, food, etc. were just more than I have been making. We have been closing that gap with school loans from Sallie Mae (average rates of 4.7%).
I picked up the financial planning on the side a few years back and have developed a nice part time practice around that and my leadership training programs. I have also been running a web services firm on the side since 2000. Top that with 2 nonprofits and I'm a busy man... without enough money.
However, I have managed to put away 13%+ of my post-tax income for the last few years. That's 9% allocated to my 401(k) and an additional $100 per month sent to my wife's Roth IRA. All told I think we're doing okay.
Total savings since 2000 when we first combined our money (pre-marriage in 2001) we have a combined retirement savings of $55,350. That's after losing about $15K in paper money between 2000 and 2002 (live and learn).
My inclination now is to push my 401(k) up 1% more to the magic 10% level and continue with the Roth IRA contributions. I also deposit all random checks and rebate returns into the Roth. $10 here and there adds up.
One thing I always keep in mind is the lesson from various personal finance books - "Pay yourself first." When the going is tough and I don't know if we're going to be able to pay the bills I "punish" myself with a $50 deposit into the Roth. Harsh, maybe. But, it's working. We have no consumer debt and we've never had a late payment on anything.
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Hi Coach. Regarding your part time practice. How do you have that set up? Are you a registered investment advisor with your state? Do you make specific stock recommendations? Mutual fund recommendations? Insurance recommendations? Do you work with a broker/dealer, or with a custodian? Thanks. Bill
Bill - thanks for the note. Currently I am not a RIA because my client load is below the level that I need to be (15). Thus, I do more investment education with clients allowing them to pick their own investments with the newly taught guidelines. I do not specifically pick the investments as that would be illegal. Insurance recommendations are similar, I approach it from an education standpoint and teach them about the available options. I allow them to steer themselves toward the right answers. Each of my clients maintains their own accounts at either Schwab or Fidelity and we go over their ideas together.
I do plan on formalizing over time.
You say you were burning through twice your income yet you have been putting away 13%+ of your post tax income.
Is this to presume that the rest is being made up with the loans? Because the statements are kind of contradictory.
So is it something like this (numbers obviously just made up):
Post tax income: 40,000
New Loans : 45,200
-----------------------
Cash inflow : 85,200
Expenses : 80,000
Savings : 5,200
-----------------------
Cash outflow : 85,200
Is that kind of how this is working?
D-man - that's correct, my wife borrowed a lot of money from Sallie Mae in order to make ends meet. Most of these loans are between 3% and 5% at the moment, but are about 2/3 variable rate (scary).
I calculated the savings percentage based off of my gross income which does *not* include the loans. So, by your illustration it would be a lower percentage. I do not consider the loans income, but rather a liability.
Post tax income: 40,000
Savings: 5,200
----------------------
Remaning income: 34,800
Loans (borrowed): 40,000
----------------------
Living expenses: 74,800
(Numbers made up, as in your example)
Thanks for clearing up the details, I was just curious how you were spending beyond income and "saving"
With respect to the loans I think you are mixing terms from different financial statements. The made up example I was showing was representing a vastly simplified Cash Flow Statement. The term income comes from a P&L or Income Statement and Liabilities show up on the Balance Sheet. I was not attempting to represent either of those financial statements with my example.
As you said, loans most definately are liabilities and not income. They simply are used to replace income or cover expenses to meet a cash flow gap (or to make a large investment when you don't have the money). That is why I showed the numbers in a cash flow format.
Hope that clears things up.
D-man - thanks. Indeed you did. I don't know why I didn't read it that way. At work during lunch I must not be in accounting mode. Cashflow statement analysis is correct.
