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October 8th, 2008 at 02:49 pm

There was a lot of talk of savings in the forums that I had been meaning to expand on.

For us, all of this was moot when we made a lot more income (both working). We saved the second wage in cash and trickled it into our ROTHs, and into our house, over the years. We always had enough cash for cars and for property taxes and the like.

I would probably have a more solid/aggressive investment plan next time around. Our loose plan if dh returns to work is to save up his salary for an entire year, cash, to bulk up a hefty emergency fund. & as a hedge if he decided to stop working again, or whatever. From that point on we would do 1/2 investing and 1/2 to mortgage. We assume all our tax-deferred options would be covered by my salary anyway. We could flip a coin which we rather do, so it's both. 50/50. To be re-evaluated with time.

Anyway, when money is flowing in way above your expenses, all that is easy. (To us anyway). We were never big budgeters or anything when we both worked. We just knew our limits.

But with money more tight (on one income) I find we have to do a lot more planning.

Our savings plans has various layers. If the bottom layer fails, the rest of the layers will collapse. It is something we have been working up to with time, and I feel will be pretty solid by the time dh is in a position to return to work. When we won't need it any more. Figures, huh?

*Layer 1 - Short-Term Savings*

The first layer is our short-term savings. For me, this covers every expense within the year that is not a monthly or semi-monthly bill.

We are currently saving $1k/month to this fund (up from $800). I think we are getting there.

This fund covers all of our insurances and property taxes (the bulk of it). It also covers vacation, regular dental checkups, car repairs, subscriptions, Christmas, vehicle license fees, etc. I am sure I am forgetting some things.

If this is not funded, we need to pull money from more long-term savings, to pay current bills. Not Good!

Anyway, our medical fund is along the same lines. Same kind of category. Our deductible is $3k annually and we will likely hit it every year. So we save $250/month for this as well.

As such, this is our first savings priority.

*Layer 2 - Mid-Term Savings*

Our goal is to add $5k annually to our mid-term savings fund. Temporarily we may raise this to $7500 because we have catching up to do. If we had done this all along, we would have maybe $30k in this fund today. (Have not had a lot of expenses lately, since moving here). So yeah, I feel we need to make up for some lost time, but in the long haul, $5k annually should suffice. (We have $3k today and might need it for dental expenses).

I primarily look at this as our new car and house maintenance fund. Other uses would be larger car repairs and stuff like orthodontic expenses. Just larger expenses that are farther in the future.

You could also call it our anti-debt fund. I think this is the kind of stuff the masses put on credit cards and HELOCs, and we just have no desire to do that.

Our one-income strategy was to buy a newer house that should need little work. That has paid off. We have put very little money into this house since we moved in 7 years ago. (Maybe $1500 for some bird proofing??? A new washer and dryer?) We also paid cash for a couple of cars since, so we saved up a lot before we had kids which carried us through a bit.

But for the long run, we will have a lot of house maintenance expenses (some we should be considering now - like painting and replacing the fence).

This fund would also cover furniture and appliances and all that as well. Stuff we just don't spend a lot on, overall.

*Layer 3 - Retirement*

This is the long-term stuff.

For now we are putting 12% to retirement.

We have actually averaged 12% over the last decade or so, amazingly.

My goal is to get retirement up to 15% on one income. With my employer match this could potentially be 25%. But I don't expect to have that extra 10% for the long haul.

15% of my gross right now just happens to be $10k. So maxing our ROTHs is my roundabout goal over the next couple of years.

Anyway, if all my other savings accounts are on track, the less likely I will need to divert retirement savings to bills, or to pull retirement money out to get out of a bind. So it is just another layer in my plan. It goes much better when all the other layers are taken care of.

*Layer 4 - Emergency*

I am not sure where to put my emergency fund in the layers.

I consider this catastrophic savings as we generally have enough savings for smaller emergencies, as is.

I guess the emergency fund would mean we wouldn't have to raid our other savings layers if we did face a large hardship. Ideally anyway.

I have 3 months living expenses in cash & I also could sell our second vehicle for another 3 months expenses (a no brainer if we faced catastrophe - the second auto would go). We also with time should have a fair amount in the mid-term savings fund to divert in case of emergency.

So this is some of my thinking with our emergency fund.


Anyway, for now it is a work in progress. But we're getting there. I think once LM is out of preschool we will largely be there. (Can fund the second ROTH at that point, by diverting preschool monies).

I think largely, with the shift to one income, mid-term expenses were largely ignored in our household. This was okay because we had a huge efund going into this (trying to prepare for long periods of bed rest, potential medical bills, or a longer period of time between children, etc., none of which came to be). So we ended shifting a lot of that efund to retirement and mid-term expenses in the end.

The rest of our savings has been rather on track. I would have preferred to put more into retirement, as time progresses. But our health/dental expenses have increased by about $10k per year. So it's just kind of crazy.

On the flip side, a decade of 12% contributions are a pretty solid foundation for a 30-year-old's retirement. I do not feel behind in the least. Could have done better, but I think I will survive. It should only be up from here.

3 Responses to “Savings”

  1. homebody Says:

    Smarty pants! Ha Ha, only kidding. I envy your smarty pants!

  2. Analise Says:

    You are doing very well for a 30 year-old. It's quite impressive! I especially like the way you've structured the various layers.

    I do something similar: our short-term "regular reserve" account is for insurance, taxes, memberships, dues, etc. Our "Schwab 1 reserve" is like your mid-term but includes money for travel (not a necessity, but sure nice to do) and any expenses incurred by our investment rentals. Our emergency fund contains a year's expenses, just in case of a major financial disaster/meltdown.

    Since I am recently retired, my retirement account is as funded as it's going to get. Now it's just a matter of trying to preserve the capital. My current plan is to hold out until 70 1/2 before taking withdrawals from my retirement accounts (I have a defined benefit pension plan that gives me enough to live on right now). Since I do not have long-term health care, I may need to tap the retirement accounts for this. We currently have good health insurance, but who knows how long that will hold out. We are supposed to have coverage "for life" but I feel we need to be prepared for the "worse case" scenario of losing our coverage.

  3. monkeymama Says:

    Pretty wise Analise.

    My goal actually used to be to get a government job with benefits. I could handle the substantial pay cut for health and pension benefits, etc.

    However, with time, I have kind of decided CASH is better. I have seen a few too many people get up to the point of retirement and lose all their health benefits, or some of their pension. SCARY. & pensions have huge issues as a whole. (Are they really being funded enough? Etc.)

    I actually have no benefits, on the flip side, but I feel I am in a better position because of it. I make enough cash to pay for it, and then some, and I wouldn't be stunned to cover it on my own. I'd lose $30k-$40k year to take on a government job and put my fate in their hands. Eh.

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