Wednesday, July 2, 2014

Pre-Tax Savings is Awesome (And Other Financial Updates)’s been a while. Hello again! June was an unusually busy month. But busy in a good way. I’ve been living life, which means I’ve been doing things that don’t involve sitting at a computer and writing blog entries. And that’s okay :)

But now that things have calmed down a bit, I want to get back to blogging. Maybe not as often as I was in my peak - I’m aiming for once a week right now as opposed to 2-3 times a week. Why is that? Well, for starters, I don’t have that many projects lined up for my apartment. I like the way it is now, and aside from a few tweaks here and there, I don’t have any major projects planned.

That doesn’t mean I’ve shied away from my goals, I’ve just been focusing on my financial goals for a while. I started off 2014 with a post about my goals, and the financial ones I laid out for myself were as follows:

  1. Get my emergency fund up to 6 months worth of expenses. By my calculations, I need to save about $9,000 more than I currently have saved up.
  2. Increase my 403b retirement contributions. I'm currently contributing 10% of my salary to this account (pre-tax) every month. My employer also contributes a very nice 12%! After I meet my first goal, I'm going to shoot for increasing my contribution to 15% by the end of 2014.
  3. Contribute to my Roth IRA or start saving for home down payment. I put these two together because I'm not sure if I'll get to them this year. If it looks like I will, then I'll start researching which is the best course of action.

And wouldn't you know it, I’ve met ALL THREE and it is only July! I even exceeded some! Holy crappola!

I filled the emergency fund last month, which led to a chain reaction. It allowed me to stop using post-tax money from my paycheck and instead gave me the ability to send roughly the same amount I was contributing to the e-fund into my pre-tax work retirement account (403b). When I did the math, I discovered that I could actually contribute 20% of my paycheck instead of the 15% I thought I would do. Amazing! And when I went from 10% to 20%, I saw a reduction in take-home pay of about $350/month. Now that I don’t need the post-tax money to put in my emergency fund, I get to pay less taxes because I have less take-home pay. Ah, the beauty of pre-tax investing!

My third goal of the year was to contribute to my Roth IRA or start saving for a down payment. I’ve already done both! Thanks to a windfall, I was able to max out my Roth IRA for the first time EVER. Boy, does that feel good.

So...with all of the above out of the way, I figured it was a perfect time to start saving for a down payment. I decided to go for it notwithstanding the following: I live in a high cost of living area, thus housing prices are high; it is a renters market here; and based on the amount I can currently put towards this goal, I might not be able to buy for another 5-7 years. Those were all reasons for me to say “no, don’t start this account.” But in the end, I figured that I have to start somewhere, and if in 5 years I have $30,000 saved up and I decide not to buy a place, then I can either keep on saving or take some out of the account to max out some retirement accounts. Saving money is never a bad decision.

Next came the question of where to put this money. Luckily, I found a decent online savings account for this purpose: Barclay’s ‘Dream Fund.’ What enticed me to this particular account is that it has a decently high interest rate (0.95%) and comes with a few bonus interest deals as long as you make consistent payments and don’t withdraw money for a certain amount of time. I don’t plan on touching this fund for at least 5 years, so no problem there! I will also be making regular contributions every month, set up in the form of an online transfer that happens automatically.

Financially, I’ve never been in better shape! Barring any major disaster, my financial situation is only going to get better. Even if there is a disaster, I have all my ducks in a row so I know I’ll be able to weather the storm, come what may. What a change compared to when I started this blog two years ago: in debt and hardly any savings to speak of.

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