July 18, 2024
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THE MONEY MINDER

‘It’s not a lot now but as newbies in our respective fields, I believe in 5 years we can easily be making $150k’: We’re finally making decent money but have fluctuating incomes and lots of questions about saving, investing, and avoiding lifestyle inflation. What’s the best way to secure our financial future?

‘It’s not a lot now but as newbies in our respective fields, I believe in 5 years we can easily be making 0k’: We’re finally making decent money but have fluctuating incomes and lots of questions about saving, investing, and avoiding lifestyle inflation. What’s the best way to secure our financial future?

Hi Money Minder,

So my spouse and I finally landed some decent jobs with real growth potential. I handle the money stuff because I’m just more into it, but honestly, I’m kind of clueless. Starting next week, I’ll be making $2,500 a month (that’s $30k a year), and my spouse just started in sales, making somewhere between $3k and $6k a month, around $70k a year. It’s not loads right now, but as newbies in our fields, I reckon we could be pulling in $150k annually within 5 years.

It’s just the two of us and our two cats, and we plan to keep it that way. We live in a pretty affordable area, getting by on $4k a month, but it’s a bit tight. Our car’s ancient, so I stick to public transport to save money and plan to do so until I can afford to buy a car outright (I really hate debt).

Currently, we’re putting 20% of our income into a 4.6% savings account, which I split into vaults for different goals. I want to bump that up to 25%. Our emergency savings goal is $15k, but right now, we only have $2k. Neither of our jobs offers 401k matching or great health insurance, and though my job offers an employee-owned buy-in after three years, I’m not sure if I’ll stick around that long since the company culture might not suit me.

So, where do we go from here?

1. How do you deal with fluctuating income?

2. How do you stop your expenses from creeping up while still enjoying your money?

3. What exactly are Roth Individual Retirement Accounts (Roth IRA) and High-Yield Savings Accounts (HYSA), and why should we max them out?

4. Where can we find a low-fee 401k?

5. How much should we save to buy a house in the $130k-$175k range?

6. In an industry where experience trumps education, is it worth taking on $35k in debt for a $20k pay raise?

If any of you came from a lower income background, what do you wish someone had told you at this stage?

Thanks in advance for any advice!

Much appreciated,
Starting Out

Response from THE MONEY MINDER:

Sure, here is the text in bold:

"Hello There,"

Congratulations on both your new job and your spouse’s recent career move. It’s clear you both are on a path with significant potential for growth, and it’s commendable that you’re already thinking ahead about your financial stability.

Handling fluctuating income requires a well-thought-out budget that includes a buffer for lower-earning months. Given that your spouse’s income can vary significantly, it might be wise to base your monthly budget on the lower end of their income range and treat any extra earnings as a bonus that can be allocated towards savings or investments. Having a lean emergency fund initially is critical; your goal of $15k is solid and should cover at least three to six months of living expenses.

Mitigating lifestyle inflation while enjoying your money requires a balance of disciplined saving and selective spending. Set a clear distinction between needs and wants, and allocate a certain percentage of your income for discretionary spending. This approach ensures you can enjoy your money without compromising your long-term financial health.

A Roth IRA (Individual Retirement Account) allows you to contribute post-tax dollars and withdraw the money tax-free in retirement. High-Yield Savings Accounts (HYSA) offer higher interest rates than regular savings accounts, making them a good place to park your emergency fund. Maxing out Roth IRAs and contributing to HYSAs could optimize your savings strategy, although for 2023, you can contribute up to $6,500 to a Roth IRA.

For a low-fee 401(k), you might not have direct control through your employers’ offerings, but researching and opening a personal IRA with a provider like Vanguard or Fidelity can serve your purpose. These institutions generally offer low fees and a variety of investment options.

When saving to buy a house in the $130-175k range, it’s advisable to aim for a 20% down payment to avoid private mortgage insurance (PMI). That translates to about $26k to $35k. Additionally, consider other costs like closing fees and moving expenses.

Regarding further education, weigh the benefits and drawbacks carefully. If the $35k debt guarantees a $20k salary increase and opens further career advancement opportunities, it may be worth the investment. However, assess if there are alternative paths, such as certifications or boot camps, that could offer similar outcomes at a lower cost.

If you come from a lower-income background, it’s vital to remain cautious about only taking debt with a clear and compelling return on investment. Building a habit of saving and investing even small amounts can significantly impact your financial future.

Best of luck as you continue to grow and manage your wealth. Remember that consistency and informed decisions will serve you well on your financial journey.

Best regards,

THE MONEY MINDER

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