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In our 20s, currently have 6 months saved up in an emergency fund, debt free other than mortgage with a combined income of $75k. Contributing 11% to 401k/retirement and 10% to savings each month. Looking to begin living off of one income in the next 2-5 years and want to start making a little more bang for our buck with saving/investing money to prepare for that. Right now getting 1% at local bank - they have CDs starting at 1.25%/3 yr on up to 1.5% for a 5 year. I know higher yields involve higher risks but I wanted to see what the thoughts were as we prepare to be a 1 income household. We will still contribute to our retirement accounts over the next 2-5 years (and after we are on one income) so this would essentially be our savings over the next 2-5 years as we already have our emergency account built up.
Last edited by Riley14; 10-07-2013 at 01:25 PM..
Reason: clarification
In our 20s, 6 months emergency fund, debt free.
Contributing 11% to 401k/retirement and 10% to savings each month.
...want to start making a little more bang for our buck with saving/investing money
Yeah, you need to do this as well but it really can't be considered as a part of the current budget.
Investment is about the future... 20-40 years into the future.
Quote:
We will still contribute to our retirement accounts over the next 2-5 years...
Again, too short a time frame... think 20-40 years of contributions.
Quote:
Looking to begin living off of one income in the next 2-5 years.
Good for you.
The single biggest factor will be managing expenses and debt.
Pay as you go, live on what you bring home, make do with less.
Keep up and expand your skill set so that your income can rise beyond COL.
Last edited by MrRational; 10-07-2013 at 01:42 PM..
Location: Chapel Hill, NC, formerly NoVA and Phila
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It sounds like you have a good plan. The key is to start saving well before you move to one income. I worked for about 12 years and then became a SAHM when my daughter was born. Because we had a good amount of savings built up, we did just fine.
But what also helped was that I had supplemental income. Sounds counter to what you want, since you want one income, but you really want a back-up plan or some help that you can fall back on in if the other's income goes south. It really helped financially and psychologically to have my foot in the door at my old job and doing some other things.
See if you can do some part-time work from home or think of a business you can work on (a hobby perhaps) that could earn you a bit of money that could pull you out of a bind if necessary. I did various things. I worked at my old job by doing 10 hours per week at home. Then I started selling on eBay. Much later when my kids were in preschool and grade school, I got a retail job during school hours. So I was never totally without an income, although it wasn't much. If you cannot do that or don't want to do that, then at the very least make sure you keep up with your skills so they don't get rusty.
Other ideas, is to cut back on eating out now before you go to one income, so you get used to it. And start building up a recipe file with easy recipes so that most of your meals are from scratch. It is much cheaper to eat that way. You may also want to look into coupons and figure out the best supermarkets to shop at (some may be better for produce, some might have better sales).
Keep your entertainment costs low - invite friends over for game nights and dinner rather than eat out. Join book clubs or supper clubs. Have game night for fun. Look for free activities in town. If you look at the parks and rec. brochure, you will probably find free movie nights, festivals, and other cheap activities. Rely on those types of things rather than going out on the town and doing drinks at expensive bars.
Since you are in North Carolina (as am I), look into joining SECU. I just bought a 1-year CD there for 1%. It had the highest 1-year CD rates I could find. Although Pen Federal had higher long-term CD rates (2% for 5 years!).
Start maximizing your 401(k)s now! Once you stop working, you won't be able to contribute to the 401(k) anymore. Do it now while you can. That is what I missed the most from stopping working. And the longer time your money has to compound, the better. Maximize if you can! I would also consider doing a Roth IRA - up to $5500 per year per person. It's intent is to use it toward retirement but you can also withdraw your contributions at any time. You say you have savings above your emergency plan, but you don't say what it is for. It might be worth looking into doing a Roth with that money, unless you have an immediate plan for it.
Lastly, I would read up on mutual funds. I don't know what kinds of accounts your 401k are in, but at your age, you can afford to take on some risk for long-term money. The more you read, the more comfortable you will be with investments that have risks.
That's what I can think of off the top of my head. Good luck!
How much does it cost for your wife to work? What is the cost of the necessary clothing and grooming for the workplace, the cost of commuting (maybe including a second car), the cost of meals outside the home that she has to either pay for, or not have time to cook at home for meals outside work hours. Subtract that from her take-home pay, and see what the difference is.
Conspicuous by its absence is any reference to the reason for desiring a non-working spouse, and whether childbirth or childrearing is a factor. Could a wife without a job responsibility actually invest the gained time in future income, through career preparation?
There are too many factors that are bubbling beneath the surface, to just be talking about percent gains on investments.
How much does it cost for your wife to work? What is the cost of the necessary clothing and grooming for the workplace, the cost of commuting (maybe including a second car), the cost of meals outside the home that she has to either pay for, or not have time to cook at home for meals outside work hours. Subtract that from her take-home pay, and see what the difference is.
Conspicuous by its absence is any reference to the reason for desiring a non-working spouse, and whether childbirth or childrearing is a factor. Could a wife without a job responsibility actually invest the gained time in future income, through career preparation?
There are too many factors that are bubbling beneath the surface, to just be talking about percent gains on investments.
Since they're in their 20's I just assume they are wanting to start a family. What I find conspicuous is the absence of all the mitigating factors that will be involved when cutting out an income (such as making meals, less driving, less work related charges, etc.). The day-to-day aspects of being a single income family.. which in my opinion is the true nitty-grity... not discussing percentage rates on retirement accounts and CD's.
I appreciate all the input - the information provided has been very helpful. We are planning to start a family and I am looking for ways to increase yields between now and when we move to a single income family (when we begin having kids). Obviously putting the money into high risk methods would not be preferable, but I was looking for more secure methods that would earn more than the 1% or so that we are currently receiving. It seems as though laddering CDs may be the best choice I can come across but I still thought I would throw the scenario out there to receive any feedback.
I appreciate all the input - the information provided has been very helpful. We are planning to start a family and I am looking for ways to increase yields between now and when we move to a single income family (when we begin having kids). Obviously putting the money into high risk methods would not be preferable, but I was looking for more secure methods that would earn more than the 1% or so that we are currently receiving. It seems as though laddering CDs may be the best choice I can come across but I still thought I would throw the scenario out there to receive any feedback.
why not make a game of it? Put all of your wife's income away...starting today. Then you are forced to budget and see exactly what it takes to run a household on one income. Don't be so worried about "increasing yields" because what I gathered from your post is that you are risk adverse. Put it in a Money Market account for now.
How close are you to paying off your mortgage? Is your current house "THE ONE"? Assuming your cars are paid off..are they cars that are going to get you through child years?
Are you including salary changes in your predictions? I know I double my salary every 7-8 years, so we make the same money now as we did when we were both working several years ago.
...but I was looking for more secure methods that would earn more
than the 1% or so that we are currently receiving. It seems as though...
You're still not getting it.
As regards living on one income... the retirement accounts aren't a part of it.
Focus on the budgeting needed to live on $X per month vs $2X.
What you do with the other $X (if it's even there) is a different discussion let alone
the yield on that money (currently low on deposits) is also a different discussion.
Once you've accumulated a full years EF, paid off all debt, acquired the 2 or 3 big items that your
household still needs (and so forth) then focus on pre tax accounts and start the investment account.
As regards the retirement accounts... what you do with the relatively small amounts of cash
you'll be able to deposit and accumulate within the next few years... isn't much of it either.
Putting the money into *something* and on a *steady basis* is almost all of it.
Choose a decent reputation growth fund any one of which is about as good as the next.
Monitor this of course but don't expect to want/need to touch it (in preference to any other
similar investment vehicle) for a very long time to come. LINKLINK
Last edited by MrRational; 10-09-2013 at 08:42 AM..
What is the purpose for saving the retirement income? I agree with MrRational here. That is money for the future. Money for the day when you want to live on it and have no other income. Money for when your kids are grown and you have time on your hands and want to visit the grand kids.
From reading your posts it would seem that you are trying to save as much as you can just in case you need the money after you become a one income family. You seem to want great returns for the next 5 years when your plan goes into effect. As MrRational posted, that money is not for now. It is for the future. Saving it is a great thing. Using it as part of your plan to turn your family into a one income family is not a good thing.
Here is what I would do.
During the time frame that you have set, work at developing income sources other than your 2 incomes that you can save now. Work 2 jobs each, becoming a 4 income family, maybe 2 part time jobs. Possibly develop a home based business that would allow you to work from home with new children. The business can bring you money in while you are at home and you can keep your retirement investment going for the next 40 years.
I think we are coming at it from different angles. Our retirement accounts will be funded every month from now until we retire - we won't be touching any money earmarked for that. In my original post, I was simply making the point that the extra money we have is not a part of what we have allotted to our retirement accounts, that we will still be contributing to our retirement in the next 2-5 years (and so on until we retire) - sorry for the confusion.
I am simply trying to get some suggestions on where to put additional income (after paying all current bills, savings accounts, retirement accounts/etc.) between now and when we have kids. Looking for a "safe" method that will churn out a little more yield than what we are currently getting at the bank.
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