Thursday, February 25, 2010

Personal Finance

Now that I have a job where I make (a little) money, I've become really interested in Personal Finance and money management. Since I am getting married in a couple of months, I've been thinking a lot about finances and how two people manage money together.

I feel lucky that TD is relatively frugal like me. That isn't to say that both of us don't like nice (expensive) things. If money was no object we'd eat out several nights a week and would travel a lot more and if TD had his way we'd have a lot more land rovers. But our funds aren't unlimited, so we eat at home mostly and save our pennies!

Some of the shared financial goals that we have are owning a house, paying for all (or most) of our children's college, and being able to retire securely and early. How are we going to meet these goals?

Down Payment
I currently own my condo and when we sell it, we will have a good chunk of change towards purchasing a house together. However, the down payment that we will need for a house will probably be at least 30% more, so this is something we need to work on saving for. My goal is to get the house paid off as quickly as possible, something that hopefully we can do with a 15 year mortgage and contributing extra payments towards the principal each year.

Thank fully little Frugal Ecologists are still likely several years off, so this isn't an immediate need for this. I am hoping that we will be able to set aside 5% of our combined income each month to make this happen. TD and I both received lots of help from our parents for college (in addition to scholarships) such that we didn't need to work during the school year and both graduated with no educational debt. This was a great gift that helped us get ahead, and we hope we can do the same for our kids someday. If we had to start today we would go with a 529 plan.

This is the big one for both of us. Since we both went to grad school to get PhD's, and TD also has a Master's degree, I feel like we are behind in the retirement game. I just recently became eligible to participate in a 403(b) plan but am not eligible for employer matching. TD doesn't have any work sponsored retirement plan. We both have Roth IRA's that we contribute to, though contributions have been lower since we have been in school. Our goal is to contribute the maximum to our Roth IRA's and 15% of our paycheck to an employee sponsored plan. I was able to accomplish this last year (actually I contributed 20%), but with us living off one salary until TD graduates, all we can do is 7% into the 403(b). We are both REALLY looking forward to having real, permanent jobs where we can make full retirement contributions a reality. For 2009 I contributed $2500 to my IRA, I am debating whether to bump my contribution up to the $5000 max, or keep the extra money in the Emergency Fund. I have until April 15 to decide.

Which brings me to .... Emergency Fund!
The Motley Fool has a nice intro into emergency funds.

This is a relatively new idea to me. I mean, I always knew it was good to have savings for a rainy day. But I just recently have looked at this in terms of a designated number of months of reserve to have in a special account. I have an ING Direct account which I have been happy with (though the interest rate keeps dropping...grrr) and which I try to add to every month. The goal for TD and I is to have $30K in a combination of savings, laddered CDs or savings bonds. I like TIPS or I-bonds because they are inflation protected. My goal for 2010 is to have $11000 in this account. We are on track to meet this goal as we have $7265 right now, and I'll contribute my full tax refund, which will bring us close to $10K.

In a future post I'll talk about day-to-day budgeting and how TD and I plan to combine our finances.

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