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Naked With Cash: Betsey S, April 2014

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Naked With Cash is an ongoing series at Consumerism Commentary in which readers share their households’ finances with other readers. These participants benefit from the accountability that comes from tracking their finances publicly and the feedback of the four expert Certified Financial Planners (CFPs).

For more information, read this introduction.

This year, we have four participants who will share their financial reports, exposing the results of their financial choices. Each participant is paired with one of our Certified Financial Planners. The experts will provide insight and guidance that will help our participants take their finances to the next level by the end of 2014. Learn about this year’s participants and experts.

Betsey is single and works as a government analyst in a job that she is still relatively new at, in a city she recently moved to. She lives with two roommates in order to keep her living costs down, but Betsey is saving up for a down payment on a home. In the long-term, Betsey hopes to retire comfortably and start a business brewing craft beers. (Read her update from last month.) This month, the topic deals with changes to income.

After reading Betsey’s comments, you can see video commentary from Sara Stanich, CFP. Sara Stanich appears courtesy of Stanich Group and Cultivating Wealth. This month, Betsey will share information about her short-term financial goals.

Betsey’s Net Worth Statement

Betsey’s Income Statement

Comments and analysis from Betsey S

I went through a big income change last year and adapted by putting most of the increase in salary towards a concrete goal: a house down payment. I realized the other day that even though I am making about $20,000 more this year, after retirement savings and the money I am putting away for a house, I am actually spending and living on less money than I did last year. The change in paying more attention to how I’m spending money feels great.

Last year, I saw firsthand how government furloughs or shutdowns can lead to unexpected income reductions. Even though I consider my job to be very stable, this has helped me to understand why it is important to keep some money on hand for emergencies.

I recently had a performance review confirming I am on track for an expected salary increase of about 20% in six months, and I am planning to increase my 401(k) contribution so that it is maxed out at that point.

Feedback from Sara Stanich, CFP

What can I say? Betsy, you are doing great. Your net worth is steadily increasing every month, you have a nice cushion in savings, and you have a monthly cash flow surplus of nearly half your income.

You are saving for a down payment, but it’s not like you are neglecting your long-term goals: you are contributing to your 401(k), and planning to start maxing it out later this year.

At the same time, you appear to have a pretty good sense of balance. I can see that you spend money on restaurants and going out. That’s a good thing, in my opinion!

You are building a great foundation for long term financial success. Keep up the good work!

I look forward to your next update.

This communication is intended only for the person or entity to which it is addressed. Any taking of any action in reliance upon, this information by persons or entities other than the intended recipient is not recommended. Any information provided is for informational purposes only and does not constitute a recommendation. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Be sure to contact a qualified professional regarding your particular situation before making any investment or withdrawal decision. Raymond James and Sara Stanich, CFP, are not affiliated with and do not endorse, authorize or sponsor any third party websites, their respective sponsors, or user comments found on this or other sites.

Feedback from Luke Landes

Your numbers continue to look great, Betsey!

I like to hear that you feel great about seeing the improvements in your financial condition due to paying attention to your expenses.

Now that you’ve seen the benefits of emergency funds, have you determined what your emergency plan would be in the unlikely case of an extended government shutdown? I know you have money set aside for a house down payment and for travel, but do you have anything set aside for income replacement?

A 20 percent salary increase is fantastic. I like your plan for the increase; investing in your 401(k) to the maximum can be a great idea. What are your investment options? There are certain circumstances in which you may want to look to other investment vehicles before maxing out your 401(k), but if you have an employer match and you have good, low-cost investment options, you can’t really go wrong.

I’m looking forward to reading more. Thanks for participating in Naked With Cash this year!

Updated June 22, 2016 and originally published May 28, 2014.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .

{ 4 comments… read them below or add one }

avatar 1 qixx

Betsey, How did you make the determination to put more into your 401(k) vs the other retirement investment options? I think the most common suggestion i see is to hit the maximum match from your employeer then to max out an IRA before maxing out your 401(k). What other options did you review before deciding to max out the 401(k) first?

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avatar 2 Anonymous

Interesting question. I think the standard suggestion to max an IRA assumes that you can get better fund options and lower expense ratios with your own IRA than through your employer’s 401k. The government’s Thrift Savings Plan (TSP) expenses are already very low (.029% in 2013), which is much lower than anything available in my Vanguard IRA. The plan has three stock index funds, a bond index fund, and the “G fund” (essentially earns the yield of Treasury bonds, with no default risk).

The second reason is just to reduce my taxable income. If I stopped at the match from my employer (5%) into my 401k, I would be above the income deduction limit for a traditional IRA, which would make my federal taxes about $2000 higher per year – I haven’t run the numbers yet on how that impacts my state taxes.

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avatar 3 Anonymous

oops, I think I posted in March rather than here. Are you sure about your calculations on $2k federal tax increase? What is the effective rate of the impact of not being able to deduct TIRA? Shouldn’t you be thinking long term rather than current tax hit, and paying the taxes now for tax free in the future which will more than likely make up for the hit now. I listened and read the January update, and I have to say, it was deflating to hear Sara, the CFP, only mention reducing tax liability through 401K. Where is the discussion about whether or not that is actually even a good idea? You have Roth TSP option and Roth IRA available to you; moreover, you have more flexibility with the Roth IRA over deductible TIRA, not to mention taxes are invariably going to increase given US deficit. Seems to better not worry about decreasing tax liability through regular TSP and deductible TIRA, and take advantage of tax free appreciation in a Roth TSP and Roth IRA. So, Roth TSP to 5% (the match goes into the regular TSP), max RIRA, extra retirement category put toward Roth TSP. If you really want the tax reduction now, then put extra retirement category into regular TSP, but again why would you?

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avatar 4 Anonymous

Thanks for the questions!

Luke, in the case of an extended shutdown, I’d file for unemployment and would probably start drawing down my house down payment savings (about $9000 currently) to use for living expenses. That would last me at least four months, depending on how many extras (restaurants, shopping) I cut from my budget, and at that point I would definitely be looking for a new job. There are limitations on the types of professional work you can do during a furlough (for example, certain kinds of work for a government contractor), but nothing that prohibits tutoring, odd jobs, or part-time work. During the past two shutdowns, federal workers received back pay for furloughed time, but it would not be a given.

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