I will get right to it – let’s figure out how we ‘ought’ to save/invest based on the current maximum amounts we are allowed to put into our retirement accounts; college savings (if any) for our unborn children; come to think of it, we might as well throw child care in there, along with an emergency/slush fund; you get the picture…
And let’s assume that ‘mama didn’t raise no fool’ so both husband and wife are in their mid 30s, and each earn over 100k – with a household gross income of 250k – and for argument’s sake, let’s do without the taxable withholdings.
On the one hand – pat your self on the back! woah! way to go! an individual wage earner earning at least 100k represents only 5% of the US population re the distribution of income. You baller you! or is it balla’? (keep patting yourself).
On the other hand, let’s put this income to work and see how it translates for maximum savings/investments.
(1) Retirement Accounts (401k, 403b, 457, etc.) $17,500 per person (not including the $5,500 catch up when you are 50 and older);
(2) IRA/ROTH IRA $5,500 per person – and though I included ROTH, guess what? the $250k household income “phases you out!” In other words, you and your spouse earn ‘too much’ (according to the IRS) to contribute to a ROTH, but hey, lets go ahead with that good old Traditional IRA;
(3) CHILD CARE Normally, I would suggest Annuities after being able to maximize your 401k and IRAs, but let’s instead consider some non-retirement goals like the annual amount of child-care in the US. After all, ‘mommy’ and ‘daddy’ are both working. Let’s call it $18,700.00 per child; (feel free to have more than one child, I double dog dare you!)
(4) College Savings – after a quick analysis on savingforcollege.com, it’ll cost $7,000.00 annually per child beginning at age 1. but hey! you’re in luck, you only have to do that for the next seventeen (17) years… oh wait, were you planning on having more than one?!?!?;
(5) Emergency/Slush Fund – let’s not forget about those unforeseen expenses! Gawd forbid you drive that Bimmer – and a nail in your tire will cost $2000! no? for all you German Car Enthusiasts, when was the last time you had to replace just one tire… at $500 each? Well, rule of thumb according to College for Financial Planning – you ought to have 3-6 months worth of expenses in cash. So let’s go with 6 months, it’s a Hockey Season (btw GO RANGERS! <—I had to, I’m from NY!) Hmmm, well – I’d say 6k net ought to adequately keeps the lights running, so $36,000.00 in a money market ought to be enough. Best part is, this is a one time deal – until an emergency happens… when was that last earthquake?
So where are we now? Let’s add everything:
(1) Retirement (for both husband and wife): $35,000.00,
(2) IRA (for both husband and wife): $11,000.00,
(3) Avg cost of Child Care (per child) $18,700.00,
(4) College Savings (for 2 kids <— hey! just keeping it real!) $14,000.00,
(5) Emergency/Slush Fund $36,000.00
CURRENT ANNUAL TOTAL: $114,700.00
Well in our current example, our household income is $250k – so that leaves us with 54% of our disposable income, or $135k. Oh wait? What’s that you say? did you want to remodel your kitchen with graphite? a curved 70” TV? did your car break down? Gee whiz I really saw us having three kids!- Can we still take that Euro-Vacation? but what about student loans! what about credit card debt?!?!? uh, did we even account for taxes? holy crap wait a minute! what if we don’t earn $250k?!?!?!! What a crock of S%^T!!!
Are you still patting yourself on the back?