January Budget & Goals

The first few months of every year I remain gainfully employed, I have one goal and one goal alone: max out my 401k right away. In order to make this possible, I left a chunk of cash liquid in my checking account to help me “survive” the first three months of the year, while putting the maximum amount of my monthly pre-tax income (90%) directly into my 401k.

Thus, assuming 90% of my pre-tax income is $8250, it will take me approximately 2.1 months to max out my 401k. This also helps alleviate the concern that should I lose my job later in the year for any reason I’d be forced to miss out on the opportunity to save $17,500 pre-tax this year. Once I save the $17,500 the next check goes into maxing out $5000 of a Roth IRA (which might not make sense at my current income rate, I need to figure that out, but I always like the idea of continuing to put a portion of my savings into an account where I can tax out all the funds and interest on those funds tax free in retirement.

In order to obtain my goals, I need that $7000 in the bank to last at least three months. This means living on under $2333 per month. I also really like this strategy because it resets my spending each year and reminds me it is possible to live on a salary of $60k, should I need to drop my salary to this rate. And, also, it reminds me that I should be living on $2333 per month going forward because that enables a much higher savings rate.

My old Mint.com account was completely messed up unfortunately so I started a new one for 2014.  My budget for this month must remain under $2333.

$200: Auto & Transport
$50: Entertainment
$350: Food & Dining
$350: Gifts & Donations
$700: Home & Bills
$400: Shopping
$250: Travel
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$2300 Total

I could have spent less than that but some of my holiday travel and expenses rolled over into January, and are already spent. Keeping myself frugal this month I believe I can hit my goal! Next month will be more challenging, as I’m home to take an out-of-town trip with my boyfriend for valentine’s day weekend. Meanwhile, I could potentially save more in March to offset this as I’m traveling for a work event for a full week with meals paid (and I won’t be spending extra on entertainment over that week since I’ll be so busy anyway.)

My goal by April 1, 2014 is to have $17,500 in my 401k and $5000 in my Roth IRA, with $272,500 towards my $325,000 networth goal for 2014 complete. If I can then continue spending under $2300 per month and save ~$3700 per month for nine months, that gets me $33,000 to add to that $272,500, getting me to $305,500, or $19,500 from my goal. Assuming an increase on existing accounts (the starting $250,000) by 5% that’s $12,500, leaving $7000 to make up somewhere along the way (i.e. quarterly bonuses.) So $325,000 is possible, but it’s not a sure thing at all. It’s likely somewhere this year I’ll be laid off from my job or change jobs and who knows what that will look like. Anyway, it seems like a good plan right now. I was trying to save $50,000 per year in my late 20s but now that I’m 30 $75,000 seems like a better plan. I’m considering picking up a weekend job to help add funds in case the stock market dips but it just doesn’t seem to make a lot of sense to do work that pays $10-$15 per hour. So I guess I’ll wait it out and see how the year goes! At least I’m pretty confident that by April 1 I can have my 401k and Roth IRA maxed out.

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