I recently received the following email from a reader. Please read her note and offer your advice in the comments below.
I'm 24 and my husband is 25. We've been married for a year and half, no children.
I work in corporate finance and he's a computer engineer. We make in the low six figures combined.
I also coach a travel volleyball team on the side which is mostly for fun but pays about 2000 a year.
We live in the greater Baltimore - DC area and recently bought our first place.
Income
- Me - 3,390
- Husband - 3815
- Volleyball (prorated) - 166
- Total - 7317
I contribute 8% of my salary to a 401K matched at 7% (very generous) and my husband contributes 4% of his salary with no match. I also have life insurance and short term disability taken out of my check. The above income amounts are after all of these deductions. My husbands company provides us with comprehensive health insurance at no cost to us. This huge perk helps make up for the lack of 401K match.
Our expenses are as follows:
- Mortgage - 1550
- Utilities - 140
- Phone - 47 - pay as you go plans
- Internet - 50
- Netflix - 7 - don't have cable TV
- Food - 365
- Auto - 380*
- Household - 85
- Entertainment - 125
- Medical - 25
- Gifts - 50
- Travel - 50**
- Misc - 100
- Total - 2974
Annual expenses include car insurance, christmas, and HOA, and cost about 5,320.
*mostly gas, I have a very long commute right now which is hard. I'll be changing locations in January which *should* bring this down.
**Local trips within driving distance, mostly to see family
Assets
- 401K - 41K
- Roth IRA - 15K
- E-fund - 9K
- Taxable investments - 3K
- Home - 285K
Liabilities
- Mortgage - 236K @ 3.25% This is a 10-1 ARM loan and we're in year 2.
- No student loans, thanks to good financial planning by our parents, large scholarships, and working multiple jobs throughout school.
- We own two paid for cars.
My main question is how to allocate our surplus each month? We currently max out our IRAs, about 915 a month. We are also currently paying an extra 1450 a month towards the mortgage. We initially put 10% down on our house so we're paying PMI. In December we'll be at 20% equity and should be able to remove the PMI. At that point I'm not sure we should be paying down the mortgage so aggressively.
Should we try to max out at least one of our 401Ks? We're not even close to doing that right now. Should we balance our retirement savings with some taxable investments? Our current taxable investment is a REIT with a 15% dividend yield (I've used the dividends to buy furniture for the new house!). However, I'm nervous to commit large sums of money to individual stocks. Our retirement assets are in either S&P 500 index funds (Vanguard) or small mid-cap stock funds (401K). Or should we continue to pay down the mortgage aggressively with the intention of keeping this house as a rental when we move to a larger place with kids (5+ years down the road)? I don't know!!!
Goals
We'd like to do a semi early retirement. I'd like for both my husband and I to be able to work part time when we have kids. I could work 2-3 days a week and he could work 4 days a week. Having a strong work life balance is important to us so that we can raise our children and be involved in our community. To do this obvious we would take an large hit to our income. This is why we're saving aggressively now. However, kids are at least 5 years away in my mind.
I'd also like to take at least one big trip before we have kids. We took a trip for our honeymoon but haven't traveled since then. I'd really like to take an international trip but currently we're not saving anywhere for this.
Also of note: We give 1200 a month to charity. We recognize that we have been very very blessed to make the income we do at our age and have no student loan debt. It's essential to us that we give, to remind ourselves of that blessing, ward off lifestyle inflation, and make an impact on the world. We give to local churches, international child sponsorship, cancer research, and local shelters, and global humanitarian efforts. When our income changes we adjust this amount.
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