How is our number?

[Leo]

New year. New job for both of us. New car but new debt.

I'm earning $115,000 and my wife is earning $35,000. We are both 26 years old. I'm going to max out 401k and contribute 15% of my income to have 18k a year in 401k and my employer will match up to 5%. Wife doesn't have 401k.

Our new budget
Estimated total take home: $8000
Estimated total expenses: $4500

Expenses break down:
Rent including storage: $1,600
Utilities: $450 (might cut cable)
Car Gas: $250
Car Maintenance Budget: $100
Car Insurance: $150
Renter's Insurance: $20
Food including eating out: $800 (We like to have a date night every weekend)
Personal stuff: $200
Travel or Shopping: $500 (we don't normally use and if so, goes to savings)
Others: $200

We both started contributing to IRA, mine is ROTH, so $8000 - $4500 - $450 (My Roth IRA) - $450 (Wife IRA) = $2600.

Maybe some of you remember that I posted a thread asking advice regarding going into debt again. I apologize but yes, we just bought a brand new SUV for $30k and put 10k downpayment. I don't want to justify our purchase and I know debt is bad and I am sorry. We plan to put every money to the new auto loan, we should be able to pay off 20k of debt in 8 months. ($2600 * 8)

Current Assets
Checking: $2,000
Emergency Fund: $15,000
My Rollover IRA from previous jobs: $11,000
Roth IRA: $12,000
Wife Traditional IRA: $5,00
Individual Stocks: $2,500
My Car: $13,000 - $14,000 KBB value
New SUV: $25-28k assuming lost value after buying.

Current Liabilities
New SUV: $20,000

We live in a nice apartment here in Los Angeles but some time this year, we are planning to move to a nicer apartment. Probably after paying off the car. Our budget for a nicer 1 bedroom is somewhere around $2,200 - $2,500, and cut some of the expenses.

We plan to have a baby before we buy a house and we are planning to buy a house before I turn 30 in September 2020. Assuming we finish our debt in Sept 2017 and save for 3 years, we can probably save around $93,600. (Again, assuming everything goes perfectly according to the plan). A good house in a good neighborhood around the suburbs is around 400k.

What are we doing wrong?

[disneysteve]

It sounds like you're doing well.

EDITED to remove erroneous info.

Some would say your EF is a little light at about 3 months expenses. Most recommend 6 months.

I wonder how much of the rent figure is for storage, what you're storing, and if it's actually worth it.

Your food budget is pretty rich for 2 people. Maybe some less costly date nights could be mixed in with the expensive dinners out.

[97guns]

Yes going well especially with no student loans, how did you land a $115k job without education?

[MonkeyMama]

Why is your wife doing a Traditional and not a Roth? You're over the income limit for a deduction. Why not do a Roth and never have to pay taxes on that money?

That is not true. Their income is well below the limit for a Traditional IRA deduction.

I agree with wife doing Traditional IRA. As childless dual-income renters, you are likely in a higher tax bracket than you will be later. Something to particularly consider if you think you will cut income later when you have kids. But I think also a consideration as to trying to save as much as possible for a home.

Edited: for typo

[Leo]

It sounds like you're doing well.

Why is your wife doing a Traditional and not a Roth? You're over the income limit for a deduction. Why not do a Roth and never have to pay taxes on that money?

Some would say your EF is a little light at about 3 months expenses. Most recommend 6 months.

I wonder how much of the rent figure is for storage, what you're storing, and if it's actually worth it.

Your food budget is pretty rich for 2 people. Maybe some less costly date nights could be mixed in with the expensive dinners out.

To be honest, I don't really have a clue why I am doing Roth and my wife traditional. Well, I guess I know that doing Roth will be tax-free in the future but traditional can be deducted during tax return. I just wanted to mix it up, and hopefully in the future when we are ready to retire, we will have 2 account with hundreds of thousands on it and 1 is tax free, and 1 is not. I don't know, I still need to do some research about our strategy regarding IRAs.

I feel like $15,000 in emergency fund is a lot of money. Let say something happened and we lost my wife income, I can still cover everything. Let say I lost my income, we can probably cut our expenses from $4500 to $3700 a month easily (for example, removing date nights, cutting cable, etc.). Plus in my line of work, I am confident that I can get a job within couple weeks. 1-2 months tops. I got laid off back in 2014, company shut down and I had multiple offers after a week or two. I apologize for sounding so confident, anyway bottomline, we are comfortable and sleeping well with $15k as EF.

Our storage is $47 a month. I really want to move the stuff out of storage but we don't really have a space in our small apartment, but I will find a way to cancel the storage. Still thinking about this one.

Yes, I agree, we can probably cut our Food expenses from $800 to $600-700 a month, maybe mix in a cheap date night.

Thank you for your advice.

Yes going well especially with no student loans, how did you land a $115k job without education?

I am a software engineer. I moved here in Los Angeles with a bachelors degree outside US. My college education was paid by my parents, it's not that expensive but I was lucky. I started at 35k. After some promotion and experience, I was already at 90k then I decided to take a Masters degree from a public university, took a 15k loan but paid it off within a year. Landed a 105k job after finishing the masters program, and now at 115k with a new company. I am also in the process of interviewing at Google and Amazon up north but not sure if I am going to get an offer, how much, and if we are ready to relocate because we have never lived there. Software engineering job and salary is so diversed, when I talked to some previous and current colleagues, some people think I am earning around 120-140k, and some people are earning way less than 6 digits.

[MonkeyMama]

Leo, My point of view is growing up in San Francisco and graduating college when houses that cost no less than $500k. We chose to not spend any big dollars on housing or cars until we could get into a condo. & then from there could think about getting into the house.

I just know that was the only thing they made any financial sense whatsoever, for us, at that time. I share in case you have not done the numbers on buying a condo or a townhouse as an intermediary step. For us, was cheaper, could buy significantly more home, received substantial tax breaks, and allowed us to ride the equity wave up to a house.

[Nutria]

That is not true. Their income if well below the limit for a Traditional IRA deduction.

They earn $115+35 = $150k per year, and the standard deduction for MFJ is $12,600. That's $137,400.

According to https://www.fidelity.com/retirement-...mits-deadlines the MFJ Modified adjusted gross income for tIRA is $118,000.

Of course, I may be misinterpreting something.

[MonkeyMama]

They earn $115+35 = $150k per year, and the standard deduction for MFJ is $12,600. That's $137,400.

According to https://www.fidelity.com/retirement-...mits-deadlines the MFJ Modified adjusted gross income for tIRA is $118,000.

Of course, I may be misinterpreting something.

You miss that the spouse does not have a work retirement plan. The income limit is $184,000 in that case. You also get to deduct 401k contributions when figuring the income limits for IRA contributions. (You don't get to deduct the standard deduction for determining IRA income limits).

[disneysteve]

That is not true. Their income is well below the limit for a Traditional IRA deduction.

My apologies. I looked something up and clearly misread it. I edited my post.

[disneysteve]

Our storage is $47 a month. I really want to move the stuff out of storage but we don't really have a space in our small apartment, but I will find a way to cancel the storage. Still thinking about this one.

I just threw that out there to make sure you're on top of it. A lot of people spend a lot of money to store a lot of stuff that probably isn't worth it based on what they're spending. Let's say you're storing $1,000 worth of stuff. At $50/month, it only takes 20 months before you've spent as much to store it as the stuff is worth. The problem is that nobody bothers to think about it that way.

If you're storing irreplaceable family heirlooms, that's one thing. If you're storing random furniture and household stuff, it probably makes more sense to get rid of it and replace it down the line when you need to.

[Jluke]

We plan to put every money to the new auto loan, we should be able to pay off 20k of debt in 8 months. ($2600 * 8)


What are we doing wrong?

I might consider paying off 20k in 8 months on what is probably a low rate auto loan to be unnecessary; especially if you are saving up for a house.

Is the stuff in storage worth more than $600? ($47*12 months).

[Leo]

You guys are right, I should save that $564 per year instead and remove the public storage.

I might consider paying off 20k in 8 months on what is probably a low rate auto loan to be unnecessary; especially if you are saving up for a house.

Thanks for bringing up a good point. The APR is 2.34%.

Leo, My point of view is growing up in San Francisco and graduating college when houses that cost no less than $500k. We chose to not spend any big dollars on housing or cars until we could get into a condo. & then from there could think about getting into the house.

I just know that was the only thing they made any financial sense whatsoever, for us, at that time. I share in case you have not done the numbers on buying a condo or a townhouse as an intermediary step. For us, was cheaper, could buy significantly more home, received substantial tax breaks, and allowed us to ride the equity wave up to a house.

I didn't think about this. Condo is something I should consider. Thank you.

[~bs]

small, but looks good since you are young and it's on track to grow!

plow money to buy condo into roth first, then into taxable accounts. you can pull the principal tax free from the roth, should you need to. Obviously when you buy, you should use taxable funds first

[AJ444]

Make sure you do a lot of homework before buying a home, there is no guarantee they will increase in value and if you buy into a decline it can handcuff you for years. I'm not saying not to buy, just make sure to analyze the heck out of it.

http://www.caniretireyet.com/renting-vs-buying-true-cost-home-ownership/