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Expenses
Home $620 includes insurance and taxes
Water $30
Electricity $100
Car insurance $120, 2 cars
Food $400, 2 people
Cell phones $170, in 10 months it will drop $30
Gas $150
Entertainment $100, Netflix, etc
Travel $300, averaged for year
Other $150, clothes, etc
Total $1870
Debt
$25k home mortgage
No other debts
This budget is for me and my wife. I'm 28 and she is 30. We have approximately $13,000 in savings. We owe $25k on our home, value around $130k. We don't have more savings because we have been aggressively paying off our home. I've been at this income level for 1 year, before that I was making approximately $25k annually. We have no retirement funds or investments. I am self employed. We plan on paying off our house next year. I want to start some sort of retirement fund before this year ends, but I don't know where to start. I opened an account at Vangaurd, but I haven't done anything with it.
Other notes: my wife was denied health insurance due to her non citizenship (she got her green card a few months ago, but too late too get insurance), mine was also canceled at the same time, so no health insurance. We have also spent about $3k on immigration costs this year. No internet, home gas, trash/sewage bills.
Your budget looks good and low. Open up 2 Roth IRAs and try and learn about mutual funds. Index funds are the easiest way to invest. A simple S&P 500 fund or a Total Stock market fund. Do some research on investing and what to invest in. Rental properties are another way to gain some ROI on your money.
As a business owner you can open up some sort of Solo 401k or SEP or Simple IRA....I am not totally sure. I am sure someone here knows.
So you're only 30, you have no non-mortgage debt, you have a house that is almost paid off, you have about 7 months of expenses in an emergency fund and you are only spending about 38% of your income every month.
Sounds like you are off to a pretty good start to me. You didn't ask any questions, what exactly are you wanting to know?
As far as general advice:
First, I would deal with health insurance. You said your wife was denied due to not being a citizen. I have no idea what the rules are on that, but you should at least get insurance for yourself figured out. Hopefully someone pipes up with advice for a non-citizen's options.
Do you have a 401k available through your job? If so, you should be contributing at least enough to take full advantage of any match they offer, as that is an immediate 50%-100% return on investment. *Edit* Oh, I missed that you are self employed. Yeah, not sure what the options are there, either.
After that, I would open either an IRA or Roth IRA and max it out. Normally you can open one for your spouse also, even if they aren't working, but I don't know if that is true for a non-citizen. I would guess not.
Thanks for the replies! I am mostly looking at general advice, to see how I am doing for my age, and how to invest our savings wisely. I've never made a lot of income before this last year, so I've never had any retirement or investments, but I want that to change. We have looked into buying a duplex to rent out. I have about 10 years of experience working in construction, so I'm a somewhat handy guy which could be helpful. I've started to learn about stocks and mutual funds, but I still don't know a whole lot. My wife is set on getting our home paid off, which is great with me, we both hate the concept of debt. For retirement savings do most people who don't get a pension use 401ks or Iras, but of course I can't do a 401k. I was just reading that Iras have a $5k limit, so maybe we should open a Roth IRA and max that out before this year ends? I believe my spouse can have an IRA as well, so with both of us does the limit go to $10,000? Do we need to have separate IRA accounts, or can it be one account? Does it matter where I setup the IRA? Does it matter if I do it on Vanguard, vs my local bank, vs Bank of America.
I would suggest Vanguard and do 2 ROTH IRAs. If you want to do more then you can open up after tax investment accounts. You will only pay tax on the growth and it can be accessible at anytime.
if you have a little time here is a good quick lesson on stocks.
I like Roth as well. It will have to be 2 accounts. And the current limit is $5500, I believe, which is adjusted upward every few years. So you could be up to $11,000 total. The limit is the same for regular IRAs or Roth IRAs.
I already took out taxes. My business income is higher, but $5k a month is what I pay myself.
Ok, That was my first question. Good to know you pay your fair share and what-not, so you don't spend time in jail!
I would first Strongly Suggest you establish a well-funded emergency fund. WHY? well, as self-employed, you never know when something might happen. You could: get sick, get hurt, need surgery, loose a client, lose income, a variety of reasons! SO: allow for at least 1 full year of the 60K+ for emergency. Just in case. Even if hte spouse is working or could, you might need the emergency fund to help along.
Now, It COULD be in "more secure accounts" that pay more, like a money market account, a the ohter 6months in 6 month CD, and a 3 month CD, or the like, that can be accessed as the year goes by.
One NEVER knows when an emergency will happen.
Now some say save the emergency account FIRST, then invest, but I think one can devote 1/2 to each, the emergency account and the other half to retirement.
You ARE running out of your "golden compounding years"...the 20s and 30s...so NOW is the time to invest a lot for the future.
$100k compounding daily for retirement is far better than just $10k compounding monthly.
BUT I CANNOT stress enough, to have an emergency account for you as self-employed.
You have several options and some are mentioned, such as ROTHs. I might suggest that too, but How about a SEP?:
I would suggest you Pay off you house while you are at it,when you can. No urgency. That will leave you the mortgage payment to invest too. At only $25k left , not so much is being used for that, and you cannot get away from the taxes, but..at $620, it isn't much to pay it off. It WOULD reduce the outlay should you lose income!
I see you don't have a car payment, or an allotment for a new/replacement car. I would suggest that you establish a fund for that so you can pay cash when the time comes. We have an account for that purpose but IF YOU see no value in that, then its up to you.
I would likewise also suggest an account for home repairs, remodeling. A new roof can come quicker than you think. Updating might be nice in 10 or 20 years.
DO you plan to have children? That will put a crimp in your budget!! so save for YOURSELF first, now while you can...You might also want to add to the house budget for repairs and remodeling to cover that in case you do have to move to a bigger house wiht kids in tow...
Best of luck in figuring it all out...I have stumbeld along the way, hoepfully you won't !
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