Financial Goal: $100k by 30

[project15]

I'll be 25 in 3 months. My previous goal was to buy a house. Been there, done that. So I was thinking what my next goal would be and thought that $100k by age 30 might be do-able. I'm counting my emergency fund (cash) as well as my retirement portfolio and any stocks/mutual funds I buy in the coming years. I'm not counting the value of my house since that's subjective until I sell it.

Here's the numbers:

Current portfolio:
Emergency fund: $13k
Roth IRA 1: $7k
Roth IRA 2: $3k
401k: $7k

Total Value: $30k


Current Savings:
Roth IRA: $350 /mo.
Extra money: $1150 /mo.

Total savings: $1500 /mo.

So if I start my savings plan when I turn 25, that gives me 60 months. Of course, life will be changing drastically for me in the next five years as my wife is craving babies so I don't know how realistic this goal is going to be. We'll be having 2 kids within the next 3 years if everything goes as planned. I figure daycare costs will decrease our savings, but our incomes will be going up - currently at $52k and $37.5k.

With all that factored in, here's what savings might look like:
12 mo. @ $1500 = $18000
12 mo. @ $1000 = $12000 <- first kid
12 mo. @ $1200 = $14400
12 mo. @ $800 = $9600 <- second kid
12 mo. @ $1000 = $12000

Total: $66,000

This will bring my total amount to $96,000. Even with a small amount of interest, that would put me over the $100k mark.

Think it's doable even with kids in our future? After reviewing this, I'm also betting against the fact that anything will occur that would deplete my emergency fund ::fingerscrossed::

[maat55]

Determination is the number one factor IMO. Good luck.

[disneysteve]

Originally Posted by project15

Current Savings:
Roth IRA: $350 /mo.
Extra money: $1150 /mo.

Total savings: $1500 /mo.

I think that is a good goal. Good luck.

One comment, though. If you have an "extra" $1,150/month for savings, why aren't you maxing out your Roth? You are only $800 short, or $66.67/month.

[noppenbd]

Agree with disneysteve. Where is the $1500 a month savings going right now? Does that include 401k savings? With $90K income $1500 a month is 20% of gross income, so you are doing well. If 401k is no longer available I would be maxing out IRAs for both you and your wife.

EDIT: I would also double check your daycare costs. Where I live a good daycare provider costs at least $200 a week per child.

[project15]

Originally Posted by disneysteve

I think that is a good goal. Good luck.

One comment, though. If you have an "extra" $1,150/month for savings, why aren't you maxing out your Roth? You are only $800 short, or $66.67/month.

We bought a fixer upper, so that money is currently going into a savings account that will fund the repairs needed on the house (not necessarily repairs, just updating the kitchen and other things).

[project15]

Originally Posted by noppenbd

EDIT: I would also double check your daycare costs. Where I live a good daycare provider costs at least $200 a week per child.

I figured $800 a month extra per child, but I also figured that my salary would raise. So what you're seeing for the second year of $1000/mo factors in a $300 per month increase in our paychecks.

[jIM_Ohio]

100k by age 30 means something if that represents 3X or 5X your yearly expenses.

100k by age 30 means little if your yearly expenses are 80k.

Not posting to burst your bubble, just to add some perspective. If you check my blog, I have some check points built in based on expenses- 25X by age 53, 12X by age 45, 6X by age 37... which would be 3X by age 29.

So if the 100k approaches 3 years expenses, that is an excellent and bold goal.

I would question the 800/month cost per kid. Is this diapers, formula and clothes? Daycare? other? We have 7 month old twins and here is some advice-

do some tax research. You will get an extra exemption ($3500) and possibly an extra credit or two (earned income tax credit maybe and more likely a child tax credit), so you might be able to take home more and keep savings constant even when kids are in picture by being pro-active on the tax front.

In our case with TWINS we have increased savings rate (from 17% to 20%) since they arrived and I assure you my kids are spoiled as much as the next ones. We eat out less and socialize cheaper since they arrived, that is another thread for another day.

Here is the math I would look at:

age 25 30k invested grows 8% to $32,400
age 26 invest $18000 $50,400 grows 8% to $54,432
age 27 invest $12000 (first kid costs $6000). $66,432 grows 8% to $71,747
age 28 invest $12000 (took out raise assumption) $83,747 gows 8% to $90,446
age 29 invest $6000 (same cost as first kid) $96,446 grows 8% to $104k.

GOAL MET

The issue I think you should instead concentrate on is saving a constant percentage of income (like 15% or 20% and finding a way to main the savings rate even as the new kid expenses enter the picture. Tax planning can account for some of the changes and creative expense control can probably account for the rest.

I have a theory that kids do not increase expenses, they shift expenses. I have only been a dad for 7 months, and the kids have only been home for 4 months, but I have not seen expenses change significantly. Add diapers and formula, removed eating out and gas has been lowered considerably. One raise since they arrived and when that happened we increased my wife's Roth contribution.

[noppenbd]

Originally Posted by jIM_Ohio

I have a theory that kids do not increase expenses, they shift expenses. I have only been a dad for 7 months, and the kids have only been home for 4 months, but I have not seen expenses change significantly. Add diapers and formula, removed eating out and gas has been lowered considerably. One raise since they arrived and when that happened we increased my wife's Roth contribution.

It depends. If I remember correctly Jim, you and your wife are staggering your work hours so you don't need daycare. For us (and a lot of people) this is not an option, so if you have to pay for daycare, I think it can be a huge increase in expenses. I know people who pay over $300 a week for daycare, and it is very hard to take that kind of a hit by cutting back other expenses.

[disneysteve]

Originally Posted by jIM_Ohio

I have a theory that kids do not increase expenses, they shift expenses.

Add diapers and formula, removed eating out and gas has been lowered considerably.

I don't think I agree, Jim. Having a kid certainly introduced new expenses into our lives: diapers, formula, clothing that gets outgrown every few weeks, frequent doctor visits and co-pays, furnishing the baby's room, starting a college savings account, etc.

While all that came along, there wasn't really anything that went away. More driving, more trips to the supermarket, Wal-Mart, Target, thrift shops, we still went out to eat, we still took regular vacations. We were fortunate to have my mother in the area to babysit but if not for that we would have had to add that expense to the list.

So I think it really depends on the couple. If having kids makes you stop doing stuff you used to do, you might not see much change. If you keep doing the same stuff, you may see expenses rise. Plus, if mom becomes a SAHM like my wife did, you also see income drop at the same time.

[jIM_Ohio]

It was a theory that I think is very particular to a given situation. Noppenbd is correct that without a need to pay for daycare, our expenses are much different than anyone which has daycare, but I would also suggest many families could find $900-$1200/month on a 100k income as an expense cut back (and not an expense addition). If most people look hard, they can find a person doing daycare under the table for much less than the $1200/month being suggested here.

I know when formula stops and diapers stop, child activities increase. I know a few things about child activities- having coached soccer before having kids- and I know the easiest way to keep costs down is to avoid competitive sports- especially the ones where people get paid. Avoid the other activities where the people administering the activity get paid. Whatever my kids miss out on in regards to activities will be more than made up for in other areas of their life (friends and family).

IMO college savings is a better deal if mortgage is paid off (than investing in a 529 for mid term growth). 529 money usually has less than a 15 or 10 year time horizon- that same money could improve financial situation by paying down mortgage and provide more tax incentives at federal level when college years are upon the child.

[LivingAlmostLarge]

I don't think daycare where I live is less than $1500/month per child. At least everyone I know pays at least that much. More than a few have stayed at home after 2 children because the cost is prohibitive. I'm not saying it's not possible to work shift hours like you, but depends on the couple.

So calculating daycare is not outside the realm of possibility. Actually it's more likely or no income because you are a stay at home parent in the equation.

[kork13]

I preface this by recognizing that I don't have children, so my perspectives are likely a bit skewed...

It seems a bit absurd to me that daycare would cost so much for just 1 child.... I mean, $1500/mo?!? That's the equivalent of a $9.35/hr job! And how many kids do they normally look after? At least 3-4 (or more) for a neighborhood in-home daycare. Annualize it--that's $18k/yr, the same cost of an OUTSTANDING private school K-12 education. Personally, I don't think it makes sense to pay that much for daycare...

[noppenbd]

Originally Posted by kork13

I preface this by recognizing that I don't have children, so my perspectives are likely a bit skewed...

It seems a bit absurd to me that daycare would cost so much for just 1 child.... I mean, $1500/mo?!? That's the equivalent of a $9.35/hr job! And how many kids do they normally look after? At least 3-4 (or more) for a neighborhood in-home daycare. Annualize it--that's $18k/yr, the same cost of an OUTSTANDING private school K-12 education. Personally, I don't think it makes sense to pay that much for daycare...

It may not make sense, but if that is the going rate, what are you going to do? It is still cheaper than having one parent quit working.

[jIM_Ohio]

Originally Posted by kork13

I preface this by recognizing that I don't have children, so my perspectives are likely a bit skewed...

It seems a bit absurd to me that daycare would cost so much for just 1 child.... I mean, $1500/mo?!? That's the equivalent of a $9.35/hr job! And how many kids do they normally look after? At least 3-4 (or more) for a neighborhood in-home daycare. Annualize it--that's $18k/yr, the same cost of an OUTSTANDING private school K-12 education. Personally, I don't think it makes sense to pay that much for daycare...

My SIL does it and charges $25/kid per day.
$125 per week
$~500 per month
$6500 per year
all that is cash only transactions if you know what I mean.

I know people which pay around twice that and those places have many many more kids (SIL watches around 4 and might get another 3 for 2-3 hours when schoolbus drops kids off until parents pick kids up).

I know many many others which do this in our area (although their price is higher).

If everyone does this on the up and up, remember two tax issues:
dependant care is before tax- so you can set up an account with employer to pay for some of this pre-tax (I think yearly max is around $5000, I forget exact amount).
There is a dependant care credit to capture some of the rest of the day care expense on the tax return.

So the ~$9/hour is before taxes are taken out.

[MonkeyMama]

Originally Posted by kork13

I preface this by recognizing that I don't have children, so my perspectives are likely a bit skewed...

It seems a bit absurd to me that daycare would cost so much for just 1 child.... I mean, $1500/mo?!? That's the equivalent of a $9.35/hr job! And how many kids do they normally look after? At least 3-4 (or more) for a neighborhood in-home daycare. Annualize it--that's $18k/yr, the same cost of an OUTSTANDING private school K-12 education. Personally, I don't think it makes sense to pay that much for daycare...

It's quite common in more expensive areas. (LAL is from a very HCOLA and I am from one - though I choose not to live in one now).

Anyway, it cost a LOT more for infants and non-potty-trained children. Costs go down considerably at age 3 & 4. LEss expensive for school-aged then. But would still be quite expensive for someone like LAL.

HEck, daycare averages $1k/month where I live. It's an expensive area, just not uber expensive like San Francisco or Boston.

The big salaries warrant larger daycare costs (& high cost-of-living, etc. Daycare providers have big rents and mortgages, etc.) I am always shocked how little some people pay in the mid-west, etc.

My spouse doesn't work primarily because there would be nothing left after taxes and daycare (2 small children).

You could easily pay $1500/month here per child. EASILY. The daycare we go to charges $800/month full-time, and is on the cheap side. Our kids go there for occasional care because it is far cheaper than babysitting. You can't find babysitter/nanny-type for under $8/hour here. IT's the minimum wage in my state. The days they go to daycare is just under $4/hour, and includes food. I have a number of friends who pay double for daycare centers. (Seems like a rip to me - you know - 8 kids to an adult, etc. Blech. They pay for brand name. I'll take my 50% off little in-home daycare any day. But you see it still costs a lot).

[project15]

So back on topic?

Jim, my actual EXPENSES are $3900 a month which comes out to $46800 per year. By the time I'm 29, going by your 3X rule, my goal would be $140k. I'm fairly positive that won't happen and I would rather stick to a goal that I think I can make rather than a multiplication of my age and expenses.

Also, the flaw in that thinking would be if I make $100k ($70k take home) a year, but my yearly expenses are really only $30k. By 29, I should have $90k (30k * 3X), but I'm really able to put away $40k per year. So by the time I'm 29 in 4 years, I would have saved $160,000.

However, if I make $100k ($70k take home) a year, and my yearly expenses are $60k. By 29, I should now have $180k ($60k * 3X), but I'm only able to put away $10k per year. By the time I'm 29 in 4 years, I would have only save $40,000 and miserably failed to reach my goal.

Going based on expenses doesn't seem like a good general rule of thumb. Now if you did something that factored income into the equation such as (income - expenses) * age * X, that might be a little better.

[LivingAlmostLarge]

That's what it costs where I live. HCOLA. Monkeymama got it head on about where I live.

Anyway project, here's the deal, you are asking about saving, but have you crunched the numbers for child care or considered whether your wife would want to stay at home?

That would be the deal changer in your projections. I never considered my income ever. I still won't, in case I want to stay at home. I left my job for graduate school at $50k and I likely won't accept less than $75k to get back in.

But that's a hefty amount of money not to count on. But I want kids and I'm pretty sure, my DH will far outstrip my earnings. So projecting no income on my parents is very conservative.

I think that 2 kids in 3 years can be very expensive. You might want a newer/larger car. How will that affect savings? You might want to in 5 years relocate to a better school district (no idea if you are in a good one). You might want to stay at home more, cut back hours (no idea if you are salary, self-employed, etc).

So I think the $100k is possible, but if you wanted more realistic projections I would crunch some numbers on daycare for 1 or 2 kids, and a realistic view of cars, vacations, etc.

Realize with 2 parents working, one parent has to take off when the kids are sick. And typically kids in daycare are sicker than those who are at home. Darn kids in daycare are disgusting.

I like kids, but my carpool lady has had hoof and mouth 3x during my period of carpooling, and multiple illnesses! Her kid is always sick at least 1x/month.

[jIM_Ohio]

Originally Posted by project15

So back on topic?

Jim, my actual EXPENSES are $3900 a month which comes out to $46800 per year. By the time I'm 29, going by your 3X rule, my goal would be $140k. I'm fairly positive that won't happen and I would rather stick to a goal that I think I can make rather than a multiplication of my age and expenses.

Also, the flaw in that thinking would be if I make $100k ($70k take home) a year, but my yearly expenses are really only $30k. By 29, I should have $90k (30k * 3X), but I'm really able to put away $40k per year. So by the time I'm 29 in 4 years, I would have saved $160,000.

However, if I make $100k ($70k take home) a year, and my yearly expenses are $60k. By 29, I should now have $180k ($60k * 3X), but I'm only able to put away $10k per year. By the time I'm 29 in 4 years, I would have only save $40,000 and miserably failed to reach my goal.

Going based on expenses doesn't seem like a good general rule of thumb. Now if you did something that factored income into the equation such as (income - expenses) * age * X, that might be a little better.

Whether you have 3X expenses by age 29 was not the point of my post. The point was 100k might be an artifical goal of little significance.

The reality is the numbers I gave you are my goals for retirement at age 53.

Your numbers are good- you might have 3X expenses by age 34 (guessing based on the 8% return and 110k I had calculated by age 30 already).

3X age 34
6X age 42
12X age 50
25X age 58

still looks good to me (retirement at age 58). And remember I assumed no raises when I came up with your numbers which suggest you hit 100k well before age 30 (age 29) with much lower deposits than you used.

One other point on goal setting.

You listed a goal "you knew you could achieve". Be careful on setting sites too low. You might take less risk than you otherwise would for a bigger picture target.

For example, what is the reason for most of the savings you are doing? (Retirement I think.)
What is the general retirement criteria? (25X expenses is what I use and many many other publications use- but this is highly subjective)
Is having 100k at age 30 more important than having 25X expenses saved when you retire (insert age here).

If you focus on the 100k, you might decide to invest really conservative just to hit that magical 6 figure mark. If you keep your sites set on the larger number (25X) and miss the 100k/age 30 milestone, but hit the 6X/age 38 milestone for example, which is better?

What you are doing (setting aside 18k/12k/6k) for retirement will get you the 100k you posted about if you get an 8% return over the 5 year period.
I am suggesting for sound retirement planning you set the goal higher and take enough risk to get (and sustain) the 8% return over a 30 year period.

Realize you have 1X expenses at age 25- that is a good start. Reasonable goals would be the halves of 25 (25-12-6-3-1.5) because you can then measure return as portfolio doubling in size. If you choose a more conservative retirement use a larger starting number (for example 33X is withdrawing 3% of assets per year- 25X is withdrawing 4%). So the halves of 33X are 16X, 8X, 4X, 2X, 1X.

[maat55]

Hey Jim,

Wait till you get to the weddings and prom dresses and cars and sports etc.

[jIM_Ohio]

Originally Posted by maat55

Hey Jim,

Wait till you get to the weddings and prom dresses and cars and sports etc.

I have two boys.

If they wear prom dresses, it better be halloween
my wife was in about 10 weddings before ours, so she has plenty of bridesmaid dresses which would work whether it was halloween or not.
I will happily pay for the weddings if they are age 23 or older. I will be retired then (I hope) and even if Bride is supposed to pay, I am game for paying for the wedding. Sports car only if they turn out to be the gerber baby or other child star. Honda works- they better learn to live with it.