freebird5825
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
i think it's great that you are looking at the big picture. understanding the problem leads to solutions.
Expense reduction side of FI
- Thread starter DanteAlighieri
- Start date
jIMOh
Thinks s/he gets paid by the post
cut each expense listed by 5% or 10% some way, some how. The take that savings and invest it.
Get food down to $720/month. Maybe $250 at grocery store every other week, then $220/month to eat out. You can cut this by 10% without issue. Invest the $80 (if 401k available- use this and save on taxes now).
Household expenses of 6k per year? Like what- can you cut this to $5400/year and invest the other $600? Invest the $600 for this ($50/month) in a taxable account in case the repair is more expensive than planned.
Medical $300. Can you get all these expenses pre-tax? $3600/year is a high amount of money to spend on medical and get taxed on. Just getting this whole amount to pre-tax will save you around $900 in taxes (25% tax bracket) Invest this $900 savings in a pre tax account (like a 401k).
$300/month for insurance is $3600. Can you lower this $30/month by cutting something out of the policies?
My suggestion
a) look to get 2 months cash in the bank. This should allow you some savings because insurance might be cheaper if you don't finance and just pay the bill when it comes.
b) once you get 2 months expenses in the bank, continue building savings to 4 months expenses, while also investing some of money with more moderate returns. A savings account might get you 2%, where as a money market might be 4% and some 30-70 mutual funds might return 6%. I would have 2 months expenses at local bank, then look to invest other cash type assets into mutual funds with a higher return profile.
c) look to save money pre-tax. Health care and 401k would be at top of this list.
In my case we have 3 months expenses in CDs, plus another months in our accounts (so paychecks this month pay bills for next month). We have a 4th months expenses in a mutual fund. The interest on the CDs gets put into this mutual fund (PRPFX) which is expected by me to grow around 6% per year. We'll have the money needed for house repairs in this fund as well, plus car payments get put here (when cars get paid off). We use 401ks for most savings, HSA for health care spending- so tax efficiency is high (we paid 8% effective tax rate in 2007 living in Ohio).
Get food down to $720/month. Maybe $250 at grocery store every other week, then $220/month to eat out. You can cut this by 10% without issue. Invest the $80 (if 401k available- use this and save on taxes now).
Household expenses of 6k per year? Like what- can you cut this to $5400/year and invest the other $600? Invest the $600 for this ($50/month) in a taxable account in case the repair is more expensive than planned.
Medical $300. Can you get all these expenses pre-tax? $3600/year is a high amount of money to spend on medical and get taxed on. Just getting this whole amount to pre-tax will save you around $900 in taxes (25% tax bracket) Invest this $900 savings in a pre tax account (like a 401k).
$300/month for insurance is $3600. Can you lower this $30/month by cutting something out of the policies?
My suggestion
a) look to get 2 months cash in the bank. This should allow you some savings because insurance might be cheaper if you don't finance and just pay the bill when it comes.
b) once you get 2 months expenses in the bank, continue building savings to 4 months expenses, while also investing some of money with more moderate returns. A savings account might get you 2%, where as a money market might be 4% and some 30-70 mutual funds might return 6%. I would have 2 months expenses at local bank, then look to invest other cash type assets into mutual funds with a higher return profile.
c) look to save money pre-tax. Health care and 401k would be at top of this list.
In my case we have 3 months expenses in CDs, plus another months in our accounts (so paychecks this month pay bills for next month). We have a 4th months expenses in a mutual fund. The interest on the CDs gets put into this mutual fund (PRPFX) which is expected by me to grow around 6% per year. We'll have the money needed for house repairs in this fund as well, plus car payments get put here (when cars get paid off). We use 401ks for most savings, HSA for health care spending- so tax efficiency is high (we paid 8% effective tax rate in 2007 living in Ohio).
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