In the series Naked With Cash, seven Consumerism Commentary readers share their financial progress on a monthly basis. They are joined by Certified Financial Planners who provide feedback on their journey. Read this introduction to learn more about the series.
Anne and Matt are twenty-seven years old, living in the Midwest, with two children. Read their bio here for background about their financial situation. Anne and Matt are on Team Neal, with Certified Financial Planner Neal Frankle. Review their July update for last month’s progress.
Their goals are to strike a balance between putting aside money for the future and enjoying the present and to save enough for retirement. Keep reading to see their net worth report, comments about the report and their progress, and thoughts from Neal Frankle. Following Neal’s thoughts, budgeting expert Jacob Wade from iHeartBudgets offers commentary.
Anne’s comments and analysis
August was a nice month. The rest of the money for our home improvements was spent. In all, we have spent about $17,000 on house repairs and improvements for the year. Sounds crazy, I know, but some projects were necessary to prevent small issues from becoming big problems, and others were for aesthetic, enjoyment and more for resale consideration.
I don’t think that we increased our house value by that amount, but I do expect it has gone up somewhat since we purchased. Our neighborhood has been selling really well. A quite comparable house down the street from me recently listed at $209,000 and sold in two weeks. I’m waiting to see what the actual sale price was.
Either way, we’re happy with our house and want to stay put.
We got the good news that Matt’s boss is finally getting around to starting that SIMPLE IRA. There’s a meeting about it later in September and he will enroll at that time. We have until the tax filing deadline to make contributions for 2013, but I would like to hit this thing hard and get it maxed out by the end of December or perhaps January. We can contribute $12,000 to it, but since it’s pre-tax dollars, it won’t be nearly that much out of his paychecks.
With that move, I don’t expect our cash to grow by much, if at all, during that time. That’s fine.
When I met with a CPA in August, he reviewed our financials and said we were doing all we could do from a tax perspective. That was reassuring, but also kind of a bummer to see just how much our tax liability has increased with Matt’s pay boost. We’re likely losing the child tax credit this year, for one thing. Oh well.
Feedback from Neal Frankle, CFP
Sounds like you made some href=”http://wealthpilgrim.com/home-repair-and-maintenance-what-are-the-real-home-ownership-costs/”>wise decisions about the house repairs. Since you are planning on staying put it was good to do those repairs and improvements. In the past, I fixed up our house but waited until right before we moved. Dumb. I spent that money too late. Had I fixed the problems earlier, I could have enjoyed them myself! Anyway, I think you did the right thing.
I agree that throwing all you can at the SIMPLE IRA is smart. And I concur that it’s just not important if the other cash accounts grow that much during that time.
Glad you checked out your situation with a CPA. Taxes certainly are a huge bummer and there are fewer and fewer work-arounds. This is especially the case for employees. That is one reason why so many people want to open their own shop and be in business for themselves. Those situations open up more tax savings opportunities.
Feedback from Jacob Wade
Home improvements are definitely costly, but from a strictly equity standpoint, it sounds like you will get much more back than what you put in. And way to get Matt’s boss on board and rocking the SIMPLE IRA. I totally understand the frustration of the tax burden increasing, as I prepare tax returns on the side and have seen it quite a bit. Just remember, tax deductions are a bad investment! Your increased income is going to be much more than your increased tax burden. Definitely reason to celebrate!
Keep on rockin’ it, and set some big goals for the future, as yours is looking so bright, I might need shades!
Feedback from Luke Landes
When putting money into improving your home, there’s a lot of pressure to look at the expenditures as investments. There even seem to be several reality television series based on the assumption that renovations increase the potential sales price of your home. They may, but not always to the extent of the full expense. This chart from Zillow might offer you a basic idea of what to expect in terms of return on your investment.
But if you’re making these improvements because you wish to enjoy them yourself, and having the money to spend is not an issue, it takes the pressure off the need to recoup your investment. There are other factors at play, too; if you’re the only house on the block without some particular feature, you probably won’t getting the best deal when you sell. Because you do want to stay put in your house, presumably for the long term, fluctuations in “value” in the short-term don’t matter that much. You have a good idea for estimating the value by looking at comparable sales, but the time you can nail down the actual value of a real asset is when someone offers to buy it.
Investing $12,000 in the SIMPLE IRA by December or January is very aggressive. I like it. But consider the consequences to your cash flow by moving that quickly. That’s a reduction of $3,000 to $4,000 pre-tax each month for three or four months. If you’ve been netting that much surplus each month, then you’re in the clear, but if not, you might need to use savings to cover the reduced cash flow. If you can swing it, do it, because that will allow you to focus squarely on your 2014 SIMPLE IRA when January 1 rolls around.
I’m looking forward to reading your next update!
Published or updated September 23, 2013.