401(k), Emergency Fund, Investing, Roth IRA

Balancing Act

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My wife and I are trying to find the balance between long term investing (retirement) and short term savings (emergency fund, house, etc.).

I tend to focus too much on investing for retirement, and am eager to put all of our spare money into either our Roth IRA’s or 401(k). The power of compounding is amazing and time is the most important element. The more money we can invest now, the better off we should be later. This simple table demonstrates that a person who invests early and for just eight years will have more money at 65 years old than will someone who starts late and invests for nearly 40 years.

My wife, on the other hand, reminds me that we can’t keep all of our money tied up in retirement accounts. We want to buy a house in a few years and need to save for a down payment. We also need to have cash on hand for unexpected emergencies. We had a real world example of why this is important when my wife was recently laid off. The value of an emergency fund, even the smallish amount we had in our savings at the time (~$3,000), provided a great deal of peace of mind. Thankfully, my wife found a new job within a week, and we did not have to dip into our savings.

Like most things in life, we have to find a balance. Currently, our retirement investments represent 78.30% of our total liquid assets. We’ve agreed to work on increasing our savings, but not at the expense of fully funding our Roth IRA’s. In fact, we have already added another $1,300 to our savings this month, while simultaneously investing another $200 in my wife’s Roth IRA.

Goals

Net Worth Milestone In September?

Although we’re only one week into it, September is already shaping up to be an excellent month. In addition to our average monthly decrease in liabilities of ~$1,000, we just contributed $200 to my Wife’s Roth IRA and deposited $1,300 into our savings account.

God willing, we should surpass the $20,000 net worth milestone this month. This would put us at just over 90% of our 2007 net worth goal of $22,000, and on schedule to hit our 2007 goal in October (2 months early!). After that point, anything extra we were able to add to our net worth in 2007 would help us begin making ground on our 2008 net worth goal of $47,800.

Deals and Bargains

Beat The HEAT

The heat lately has been oppressive. Since our condo is so close to the ocean, it does not have central air conditioning. During this recent heat wave, my wife and I have found it difficult to sleep at night. To make matters worse, our condo is only open on one side, so there is no opportunity for cross ventilation. The best we can do it put a fan in front of an open window.

We’ve lived in our condo for ~2 years and have finally decided to throw in the towel and purchase a Soleus Air 9000 BTU Evaporative Portable Air Conditioner. A few of our neighbors have similar units and they do a great job cooling our little condos for ~$50/month. My wife found this unit online for $295.20, it regularly sells for $369.00. Since it’s portable, we can take it with us when we move to another place at a later date.

It would be great to be able to put this money into our investments, but it sure is going to be nice to be comfortable at the push of a button.

Income Statement

August 2007 Income Statement

As I mentioned in my July 2007 Income Statement post, I didn’t expected that we would be able to match the relatively low expense levels of July in August. Well, August, with all of its ups and downs, ended up being a great month in terms of our expenses (click spreadsheet below). We only went over budget ~$300, $716.53 of which was for a new mattress. That puts our August expenses $264.69 lower than our July expenses!

In terms of income, August was a mixed bag. I received an extra paycheck this month, but my wife’s 1st paycheck was only for one week. We were able to earn an extra $104.53 thru credit card cash back rewards and $100.00 thru selling our old mattress. And finally, with our increased savings account balance, we earned $12.14 in interest income, our largest amount yet.

September should be a great month incomewise. My wife is expecting a commission check on a job that she referred to her dad’s company (~$700), a final commission check from her old job ($600-$1,000), a final check from the job that laid her off (~$1920), and her first paycheck from her new job(~$1,075). Hopefully, we can continue keeping our expenses down.

Net Worth

August 2007 Net Worth Update (+$2,205.39)

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August has been a volatile month in more ways than one. Nonetheless, our net worth increased $2,205.39 over last month, to $17,267.23 (click on spreadsheet below). We are currently at 78.49% of our 2007 net worth goal. Thank God, we’re still ahead of schedule to meet our goal.

What worked this month?
I received an extra (3rd) check this month that provided us with an additional $1,880.70. We were able to increase our savings by $831.02, which is amazing because we had a couple of large expenses come due in August, such as a $716.53 mattress bill and $300 seat sponsorship for our church. Surprisingly, we did not have a $1,000 business expense that we are expecting post to our credit card; this will likely post in September. In other good news, we were also able to contribute another $500 to my wife’s Roth IRA and we continue to make progress on our liabilities, decreasing them by ~$1,000 each month.

What did not work this month?
Obviously, this was a roller coaster month for the stock market. After subtracting out our contributions, our retirement investments were either flat or lagged behind last month’s balances. Another shake-up this month was that the company my wife just started with 1 month ago laid off 75% of their employees, including her. The great news is that she already has a replacement job.

What’s coming next month?
Now that August’s books are closed, we’re looking ahead toward September. All indications are that it should be a good month too. My wife is expecting a commission check on a job that she referred to her dad’s company (~$700), a final commission check from her old job ($600-$1,000), a final check from the job that laid her off (~$1920), and her first paycheck from her new job(~$1,075). I’m also hoping to receive my company profit sharing (~$550) in September.

Career

It’s Good To Know We Were Prepared

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Great news! My wife has accepted the job offer that she was considering. We are very blessed in that she was offered the job within 2 days of being laid off from her last company. After meeting with them again this morning to learn more about the company and the job, she decided it was a good fit. She starts with them on Tuesday of next week.

Her first 2 months with the company are training, but there may still be an opportunity for her to earn some commission during this time because she inherits all existing accounts in her protected territory. Any accounts that are due to renew service, she receives a commission for.

I am very proud of her. You hear horror stories of people being out of work for months on end. Within a week, she interviewed with numerous companies and received quite a few call backs for second interviews.

Since she received a new job so quick, and her old company agreed to pay her until 9/5, we will not experience any paycheck lapse. Therefore, our emergency fund will remain untouched and we’re moving forward. I’ve got to say, it’s good to know we were prepared for the worst in case things worked out differently.

This concludes this test of the Emergency Broadcast System.

Budget, Career

The Beat Goes On

Thus far, we have done a pretty good job of reducing our expenses while my wife is searching for a new job. To further help our cash flow, we have decided to postpone a $165 deep cleaning that my dentist wanted to schedule this month. Also, if my $1000 business expense posts before my wife has a new job, we will likely pay the minimum to preserve cash.

My wife has had many interviews with various companies and is seriously considering an offer from one. She has arranged a 2nd meeting to learn more about the company and the position before making her decision. The position is in a field that she is not experienced in, but the company has a training program to get her up to speed and she would receive existing accounts in a protected territory. They would like her to start Tuesday of next week, which is great timing for us.

The offer is a $35,000 base, 20% commission, milage reimbursement, laptop, cell phone, and 100% medical insurance paid for. Unfortunately, they do not offer a 401(k), but they are considering adding it down the road. I am only contributing $2,000/year to my 401(k) currently, so we have plenty of room to increase our contributions.

Stay tuned.

Our path to financial independence and retiring early.