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Eye Opening...

November 11th, 2007 at 05:06 pm

I've come to the conclusion that one year of reorganization can make up for a few years of bad money management. If not "bad", at least less than stellar...

It's interesting.

Just thinking about it as I ponder our 2008 budget, and forward.

I recently came to the conclusion to relax a bit on retirement. I have been trying not to rely so much on my boss's contribution and that is certainly a worthy goal. But I realized, while pondering the budget, that 10% of my income (even a little more) goes to preschool. Which is rather temporary. & the reason I want to hit retirement so hard is less because we need it today, but more for future planning. So thinking about it in these terms I realized both the easies thing and the most sensible thing to do is to consider the preschool money as retirement money. It means we can contribute 5% easy to retirement come this September when we go from 2 to 1 kid in preschool. & then in 2 years we have the 10% contribution easy (total). In the meantime I get 10% from my boss too. Is there any reason to rush it otherwise? At expense of other goals? Not really.

Kind of like a lightbulb went off in my head.

Anyway, thinking in these terms and looking at our savings plan for 2008 I realized for the most part we on track to save 1/3 of my income. Even if 10% goes to preschool in the interim. Well, not for long!!!

I also realized that on another level if we save 1/3 of my income, we are still living on the same income we made before kids. How bizarre is that? I feel like we have really been living up to our income. & we certainly have much more/more cushier lifestyle than we did 5 years ago! Plus we have 2 more mouths to feed.

But um, nothing has really changed. We haven't lived up to anything. We have done a lot of cost cutting measures in order make it on one income. Wow! It is just bizarre to come to this conclusion. I feel like in the interim we have been living up to our income and I have been fighting it every step of the way. Well, maybe all the fighting has been working better than I realized!

I have been running the #s through my head because it doesn't really make sense. But I think when we had 2 incomes we felt we had a lot more room to waste money. PLUS we have done so much planning that we have far more assets to fall back on, which means we rely on the income a little less. We have newer cars (so less worries about replacement costs in the interim). The cash in the bank earns decent interest which means some of our savings comes from that. Etc., etc.

It's, interesting.

On the flip side, we used to pay a lot more of our income to taxes. So though I may be saving 1/3 of my gross pay in a sense, I also take home a much larger percentage of gross than I used to. & that probably counts for inflation and the extra mouths to feed and all that. To be fair - we aren't doing THAT great. LOL. The tax factor is huge...

Well, I am sure I am missing something. But it's kind of my "aha" moment. Maybe we aren't doing so bad.

Our savings looks something like this:

3% retirement
10% Preschool (to retirement eventually)
13% Short Term Savings (escrow)
7% Mid Term Savings (house/cars)
--------------------------
33% Gross Income Saved
--------------------------

I also understand a large chunk is for short-term savings (to be used within the year). But, um, I wasn't saving that before when we dropped down to 1-income. Nor when I received about a 50% raise over time. So it's all money I wasn't making or saving before. Now I am making it and saving it. Big Grin

I still want to plump up retirement as much as I can, but am considering working more on cash reserves in 2008. With more cash reserves, we could more easily devote 100% windfalls to retirement. win-win-win. There is a bit of a psychological factor in it all. Of course the more we put to retirement now the bigger difference it makes. So it is a balance trying to figure out the best plan. But we're getting there.

On the flip side, the more cash reserves the laxer we feel on the budget. So part of me wants to put every last time I can to retirement. Forget cash. I guess the psychological factor can go both ways. & of course the more we put to retirement today, the easier it should be in the long run.

All stuff I have to think through. In the meantime it feels nice to think we are doing much better than we thought. BUT don't worry, I don't feel any more relaxed. The whole IRA max is really motivating to me. Because the more we put in there, the more is tax deferred. Which in the meantime encourages to try to save even more than the plan.

The other interesting factor is though my income has gone up so much, it shows little sign of slowing down. So saved raises will go a long way to get our percentages up in the interim.

I think my overall goal is that in about 3 years, when the kids are in school, I want to say to dh, "I don't care if you work." If he wants to buy new TVs and electronics and all that a faster rate, or if he wants to work on a career. He will have that freedom. (& I will largely say you want that stuff - you come up with the money). I want to be able to say that even if I no longer get 10% of my income from my boss in retirement that he does not have to work. He only has to work if he wants to go back to school or if he wants an elevated lifestyle. It's just one level in the path to financial freedom I guess. & I feel we are getting there quicker than I thought we would.

As stands it probably means I would hope not to need a second income in the least by age 32 (which ironically means by age 25 because that is the last time he worked anyway. But today we still think of it in terms as temporary. It has to crossover to a permanent thinking yet).

My goal is still not having to work full-time by age 40. Of course, if he decides to work and finds some success, I may be able to speed this up significantly.

It is interesting. Full blown retirement appeals little to me. I like working. But not "having" to work is certainly a different mindset - a worthwhile one.



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