Naked With Cash is the year-long series on Consumerism Commentary where seven readers’ households share their financial progress on a monthly basis. I’ve partnered with financial planners who will offer some guidance along the way. Read this introduction to learn more about the series.
The first readers to share their December 2012 net worth are Anne and Matt. 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.
Their goals are to strike a balance between saving 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.
Matt’s net income for December was $9,284. This includes two normal salary paychecks and two bonus checks. Some of the bonus from November was delayed until this month, so this is a little higher than normal. Anne’s income was $231, which includes $100 credit card cash back and advertising on her blog. That’s a total income of $9,515.
Anne’s comments and analysis
Taxes are the only thing withheld from Matt’s paychecks. We hope to withhold just enough to meet our annual tax obligation without getting a big refund or owing a lot of money, but I don’t know if we’ll hit that target this year with Matt’s income change. Honestly I have no idea what will happen for this tax year (or next, ugh), but I will start preparing our taxes once the W2s arrive.
Matt does not have a 401(k) anymore since he switched employers.
Here are our regular monthly expenses.
Health insurance: $701. We have private health insurance since my husband’s employer doesn’t offer a group plan. My husband and children are on one high-deductible HSA plan and I am on COBRA from his old employer to retain maternity benefits while we TTC. This dollar figure also includes a low-cost dental plan. In 2013, I’d like to open a HSA for my husband. We’re thankful that we can have insurance, but not gonna lie — the price tag sucks.
Escrow: $383. Property tax, home insurance, car insurance, life insurance, disability insurance, HOA. We pay ourselves each month, and then pay the policies in full when the bill arrives.
Utilities: $271. Gas, electricity, water, trash. We do budget-billing for gas and electricity to keep the payment consistent each month. \
Communications: $157. Internet, Netflix streaming, two cell phones (one with a data plan, one without).
Charitable giving: 10% of gross. Typically that’s around $960, depending on how many paychecks fall in the month (Matt is paid bi-weekly).
Total regular monthly expenses: $3,362.
These are our flexible monthly expenses:
Groceries, restaurants, gasoline, entertainment, clothing, household, etc. I don’t have good estimates for these items since I haven’t been tracking them lately.
Cash in banks. We have $16,000 in ING Direct, earning .075%. The money in ING is just for emergency and longer-term savings. Our other bank is PNC, and I love their Virtual Wallet. At this time, there’s no rewards program but I think they’re rolling one out soon. Only earning 0.5% in the savings account there. PNC holds our checking, short-term savings and escrow. I don’t want to switch from PNC, but I’m open to switching from ING.
Anne’s Roth IRA: $12,035. Account is with Vanguard, and is invested in VFIFX — their Target Retirement 2050 fund. I have $250 to go to max it out for 2012, and the money is sitting in my bank account waiting for me to pull the trigger on it.
Matt’s IRAs (some traditional from a rollover, some Roth): $45,561. Account is with Vanguard. His is in the VTVIX Target Retirement 2045 fund. I thought we had the same fund. Perhaps we should consider switching them to the same. Matt has $3,875 left to contribute for his 2012 IRA. We have $2,158 in the bank ready for that, so only $1,717 to go. Matt has substantially more for retirement saved than I do, in large part to his past 401k plans. At his first company, he had a generous match. Our income was around $45,000 to $55,000 at the time and while we were paying down debt and building savings, we only contributed up to the match (sometimes a little bit more).
Matt’s vested 401(k) at Fidelity. Probably rolling this over to Vanguard IRA since the fees are lower, and to keep our allocation consistent. We chose a large cap growth fund. Our choices were limited, and this one had a decent expense ratio compared to others.
529s. Held at our state 529 plan. We earn a great tax benefit off our state taxes for our annual contribution, so that’s a nice perk. These are also in target date funds.
House. In 2011, we purchased it at $165,000 with 20% down and we think we bought at the bottom of the market. Since we purchased, houses in our neighborhood have sold between $174,000 and $230,000. We hope to live here for at least 10 years (hopefully longer). A few months ago, we refinanced to a 15-year fixed at 2.87% and are making the minimum mortgage payment. We are escrowing our own taxes and insurance.
As I mentioned in my intro, we have two paid-for vehicles but I don’t plan to track their estimated value each month here.
Credit card. We pay this off every month in full, and haven’t carried a balance since 2008. This is a Citi cash back card. No annual fee, and 1% cash back on purchases with 5% cash back on some categories. Caps out at $300 in rewards per year. We have our electric, internet, phone, and insurances go to the card, as well as our normal spending.
Christmas and all the surrounding festivities of course. I had put aside $400 ahead of the month to purchase gifts for my kids, and we spent an additional $140 on gifts for family, and probably an extra $100 on food for parties. Another $80 went to decor and crafting supplies to make presents.
Dental work. Three of us went to the dentist for checkups, and two of us needed cavity repair. I had a lot of cavities unfortunately (some of them were old fillings that had worn and developed new ones). We spent $1,711 at the dentist this month! Yuck. While we don’t have dental insurance, we do have a dental discount plan that costs $12 per month for our family. This plan reduced our expense by roughly half of the regular out-of-pocket cost. We could have saved even more if we had an FSA or HSA funds available.
Charitable contributions: $1,490. A few hundred was a holdover from November while we figured out how we wanted to spend it.
Looking ahead, we want to finish off both IRAs for 2012. We’d like to identify some of our savings and investing goals so we can put together a plan. I’d like to max out the IRAs again, put at least $5,000 total to the 529s, and start saving for a next vehicle.
Feedback from Neal
First, nice to meet you. I’m super impressed by your willingness to share, learn and (most importantly) improve your finances. By participating in this program, you’re really putting your money where your mouth is and demonstrating commitment. I love it.
Let’s talk about your spreadsheet. Here’s an easy idea that is more accurate and takes about 5 minutes a month. Consider using your bank statements to tell you what it costs you to live. I love this method. You simply average out your monthly withdrawals over the last 12 or 24 months and you’ll know exactly what you spend without doing too much work. Another approach is to use a software package and personally I do both. Either way, many people only use a spreadsheet and this causes lots of problems and wastes time. I would consider using one or both of the methods I mentioned above.
Going down the list, I would like to know more about your blog. How much time do you spend on it? What do you think the prospects are long-term? You blog income is very modest and it’s important to consider if it’s worth the work.
I like the idea of you keeping withholding to a minimum. Good job.
On the 401(k), when will Matt be eligible to participate?
If you are interested in a good reward program for a savings account, consider Perkstreet. They have one of the best programs on the street and they are very consumer friendly. At least that has been my experience. They might be a good alternative to ING.
I am not a huge fan of target date funds. People often think they need to take almost no risk as they approach retirement age and I think that may be misguided. When you retire, you still want your money to work for you as long as you live and hopefully that will be another 30 or 40 years. That being the case, a target date fund is not your best choice.
Also, I suggest that you invest during the year as the money comes in rather than wait until you have all the money. This way, it acts as a forced saving and you take advantage of dips in the market to get a discount on your shares.
Last, can you afford to contribute more to these accounts? I know people only like to contribute up to the matching amount but I believe you’ll benefit greatly to put in more money because of the tax deferral and tax deduction. Is that doable for you?
Overall you have done a fabulous job of staying out of debt and being on top of your finances. When I read the last part of your update I became convinced that a software package that helps you track actual spending against budgeted amounts would be really helpful in setting up accounts for gifts, tithing, investing, taxes etc. This would also help you be prepared for non-recurring expenses like dental work, etc.
The one big hole I see (unless I am missing something) is a retirement plan and investing. What are your thoughts about this? Do you know how much you’ll need? Do you have a plan to accumulate that amount?
I look forward to answering any questions and going through this process together.
Feedback from Jacob
Hey guys! Glad to have you on board here. As a Christian myself, I can relate to the concepts of stewardship and money being a blessing. You seem to be rockin’ right now, and I think you’re on the right track, being aware of lifestyle inflation and getting into retirement investing early. Of course, I’m always going to advise being on a budget each month, planning your spending before it happens. It looks like you have one together, which is awesome. Do you go over it before each month begins? I advise this, even if just a 5 minute sync, to make sure your account for any upcoming expenses that might be there normally.
It looks like you have a few categories that have fallen by the wayside as far as tracking. Do you use any software to track your expenses, or just a spreadsheet? I like using both, because I love the detail and flexibility the spreadsheet gives me, but the software categorizes everything for me. More than anything, I definitely advise tracking the grocery and entertainment budgets, because those can easily inflate and end up costing you hundreds of extra per month. For those irregular expenses, I use something I like to call savings buckets. Those have helped me plan for things such as birthdays, holidays, vacations, etc. and not blow the budget. Also, with your earning power and (seemingly) low expenses, I’d also make sure to not overlook planning in some fun.
Looking forward to seeing your progress this year!
Updated January 14, 2013 and originally published January 11, 2013. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.