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My wife and I have recently settled down (I'm 26), and we're finally able to start putting some money towards savings for retirement.
Right now our expenses are:
$1500/month towards our home (utilities & mortgage)
$1500/month in debt
$1000/month in living expenses
Our combined income is about $7000/month. I am contributing to my 401(k) to get the most out of our company's matching program, my wife is doing the same. We have already contributed to my wife's IRA this year, and I will put $5000 in mine at the end of the year.
What else should we be doing to save? How much per month should we stash towards retirement? I know that I'd rather save more than is necessary to retire, but how much is enough?
If I were you, I would pay off the debt and save at least 15% of your income using the 401K up to the match, then Roth IRA's and then if you still have some left over put it in the 401K.
With your income, expenses and mortgage you could even max out 401K and Roth contributions and take advantage of compounding interest while you are younger. Let it get rolling and scale back later if/when you think you have enough.
The smartest advice I ever got about money was to "Live within my means and pay off debt as quickly as possible." This advice has served me well. Living within your means encompasses so many things but I'll highlight a few key points.
1. Save up and maintain enough funds to EASILY cover a minimum of 6 months worth of expenses. If you lose your job, get a divorce, etc....this money can be a lifeline.
2. Pay off credit card debt each month so as not to incur finance charges. Why give away money if you can pay the bill each month?
3. Use a credit card that offers a rewards program. It's like free money for gift cards, household goods, frequent flier miles, etc.....
4. Be careful with how you use credit cards. Don't rack up a lot of debt for things you may not even use in a year.
5. Make extra principal payments on your house also and you can save a small fortune in interest over time. Use a debt calculator to show how much money you can save in the long run.
6. Buy a used car that is still under warrenty. You'll save thousands yet still have a good car.
By following a common sense approach, the money you save yourself in interest and finance charges can be used to invest instead. I can't tell you how or what to invest in but reducing expenditures is a good way to save.
Yep, I would tackle that $1500/month debt asap. I guess it depends on the interest rate, but I won't assume it's low.
Although "the most you can possibly afford as early an age you can afford" is the best answer, there are calculators that can determine how much is needed to save for X amount by the time you retire. Do you want to travel in retirment? Do you want your house paid off by then? Do you want to just relax on the beach front? etc... and the calculator can determine what you'll need for a ballpark figure.
These days it is recommended to have the same income as your money earning years in retirment. It used to be 75% 80% od your salary, but more and more people are "living" it up a little in retirment and actually need the same amount. good luck. You're doing great so far.
Yep, I would tackle that $1500/month debt asap. I guess it depends on the interest rate, but I won't assume it's low.
Actually it's student loans and a HELOC from my parents. We borrowed some money to avoid PMI, and we will have them paid back by next year at this rate. The student loan might take a bit longer.
Actually it's student loans and a HELOC from my parents. We borrowed some money to avoid PMI, and we will have them paid back by next year at this rate. The student loan might take a bit longer.
The interest rate on both is around 6%.
Hey, that's great. I guess you can go either way at this point. They are fairly low especially with the tax deductable SL. You are losing money with the HELOC though which you are not getting a deduction for. Maybe pay that down and you would be ahead, but that's just splitting hairs at this point. You're doing great IMO.
Ok, you're in pretty good shape considering you don't have CC debt or car payments. If you can avoid those 2 pitfalls over a lifetime it won't matter if you calculate your savings based on net or gross because you'll probably exceed the recommended 15% anyway (...I think it is 15% of net pay). Just get rid of your HELOC and student loans ASAP so you can use your income to build wealth rather than pay debt.
gizmobizmo makes some good points overall, especially regarding saving for emergencies. I would only disagree with the prolific usage of CC's to earn points or rewards. On average people who use credit spend more (I think it is 18% more...??) than folks who use cash. CC companies know this too, that's why they offer the 'rewards' in the first place.
What, use CASH?? Yup, that's what I said. For all of our regular spending we use cash and it has been a key in keeping the budget under control along with planning spending in advance rather than tracking it after it has happened. There are times we still use CC, but limited and for our own protection/convenience...not for the purposes of earning rewards.
We have already contributed to my wife's IRA this year, and I will put $5000 in mine at the end of the year.
You are doing great! But I suggest to invest monthly in the IRAs and 401ks to get the benefits of compound interest. You do not earn as much interest when you invest once a year.
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