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How does my Budget Look?
Old 09-02-2010, 08:11 PM   #1
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How does my Budget Look?

I start my first-full time job in a couple weeks. My starting salary is around 45k plus any incentive pay (not included in numbers below). I have made a preliminary budget and wanted to know what you guys thought of my strategy. Overall, I plan to spend around 30k a year and save 15k. I live in a realatively low-cost area. Below is the outline of where the savings will be placed.

1. Max out Roth
2. Max out Health Savings Account ($2400)
3. Save 7.8% is 401k (must contribute 6% to get entire match)
4. Save $400 in cash (mainly emergency fund & future house downpayment).

I expect to recieve a bonus this year/early next year for passing the CPA exam. I plan to use this money to boslter my Emergency fund.

Currently the only debt I have is about 3k in student loans. I have a paid-for car 2yr car.

I do have a couple questions. First, would you continue to max out the the HSA after the first year? After the first year, I will have enough to pay my total out of pocket costs for any given year. Should I continue to throw money in there even with the uncertainty of where healthcare in this country is going? I do love the tax benefits of the HSA though. If it makes a difference, I am currently healthy and expect to spend far less than my deductible each year.

Second question is more about cash management. Several of my budget items are accurals of sorts (vacations, christmas gifts, auto maintaince, etc) Do a lot of people have these "accruals" automatically taken from their checking account and put into a seperate savings account for when the expenses arise or just leave the cash in the checking account?

Anything I might be missing?

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Old 09-02-2010, 08:37 PM   #2
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Congratulations on your new job! You are going to do well, I am sure, because you are already thinking of managing your money responsibly.

I don't know the answer to your first question, since I never had an HSA. Perhaps someone else can answer it.

As to your second question, I would think that this is a matter of individual preference. For example when I was working, I would put my whole paycheck in my checking account. Then, at the end of each month I would move anything over $2000 from checking to savings. If something came up, such as auto maintenance, I would pay it from checking.

The reason this worked for me, with my personality, is that to me it was a great game to see how much I could move into savings each month and how fast my savings account could grow. Obviously that doesn't work for everyone.

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Old 09-02-2010, 09:12 PM   #3
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Sorry Red Hawk, but you're the newly minted CPA--we're going to be asking you the questions from now on!

Congratulations on the job!
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
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Old 09-02-2010, 09:19 PM   #4
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1. Never had an HSA either, so I cannot comment on that.
2. For the future, I do budget for accurals ($x for car repair, $x for car purchase fund, $x for vacation, $x for house repair, etc.).
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Old 09-02-2010, 09:23 PM   #5
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Originally Posted by Bestwifeever View Post
Sorry Red Hawk, but you're the newly minted CPA--we're going to be asking you the questions from now on!
Not quite yet. I have passed 2 of the four sections and waiting on my score for the third. Hopefully I will be done in November.
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Old 09-02-2010, 09:32 PM   #6
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I'll wait til December .

Seriously, you are already so far ahead of most people in that you have a budget in mind and good questions about achieving your goals.
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Old 09-02-2010, 09:33 PM   #7
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I use a budgeting program called You Need a Budget. I set up accruals for long term needs and irregular expenses. Once it is set up in the budget it is considered effectively spent and is no longer available in the budget to be spent on something else (I can change this, of course, but need to consciously decide to do it). It is immaterial what bank account I hold that money in as I don't see it as being available to me.
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Old 09-02-2010, 09:39 PM   #8
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Hi RedHawk,

RE: the HSA and the 401(k). Have you considered the tax implications for the future with these vehicles? If you typically use all of your HSA money (or nearly so) I'd suggest you continue to fund it fully. If the fund is building up quite a bit, it becomes more like an IRA than an HSA. If you disagree with my evaluation of this, do some research on HSAs and make your own decision - heck make your own decision and don't listen to us!!

Here's my point. With an income of 45K, your taxes are already low - or should be. So putting money away tax deferred may be setting you up for a big tax bill later when you take the money out of 401(k)s, traditional IRAs, and HSAs (for non medical stuff). My suggestion would be to fund your spouse's Roth IRA instead of funding anything tax deferred. If you can't do that - e.g., no spouse - put the extra money in taxable accounts and pay the taxes now. If you were making $145K/year, I might think differently. But in low tax rate brackets such as yours, I'd say: Pay the taxes NOW. Someday, you're gonna be "RICH" if you keep saving. At that point, when you take tax deferred money out, the IRS is going to take a third of it or MORE!! Don't let this happen to you!!! I know whereof I speak as it's starting to happen to me! If I had a do over, it would be to REDUCE my deferral of taxes and save more in Roths or taxable accounts. I happen to think the tax-defer trap is the worst idea ever foisted on us by our gummint, but that's just me. I'm sure many here disagree with me. Unless your are "rich" now, don't get sucked in.

Just my 2 cents worth - probably not worth that much. YMMV, etc. etc. etc. and good luck!!
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Old 09-03-2010, 10:26 AM   #9
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Well, Koolau said what I was going to say about deferring to much in tax advantaged accounts... When I talk to people, I say do NOT put any money in a tax defferred account if you are in the 15% tax bracket.. unless of course you are getting matching funds...

As for the HSA.. I was in a seminar where the guy who was giving it had over $145K in his... he had bought Apple when it was cheap... he also had NEVER taken a penny out of it... it seems that the rules allow you to take it out for medical cost 'whenever'... so as long as you keep track of all your costs, you can take the money out when you are 65 without paying taxes... at least that is what he told us..
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Old 09-03-2010, 12:48 PM   #10
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I'd suggest funding the HSA on an annual basis. At your age it's like another Roth that can provide tax-free funds for medical expenses now, or long-term.


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