Will I be too cash poor?

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Will I be too cash poor?

Postby snapwa » Fri Jan 25, 2013 1:49 pm

I understand this topic might lead to quite a few subjective responses, but I'm still interested to know what people think...

Thoughts on whether I'm leaving myself with enough after-tax cash?

disclaimer--> *rough draft breakdown below, I might have messed up some calculations*

Bi Weekly Paycheck breakdown:

Massachusetts, 25% federal, single, age 24
$2,192.31 gross bi-weekly(57K annual)
$328.85 401k Contribution(15%)
$200.00 Insurance(premiums plus max out HSA contributions)

which leaves me with about $1,200.00 per paycheck, $2,400.00 per month( Estimate based upon ADP salary calculators)

Monthly Expenses:

$800.00 housing expenses
$1,000.00-$1,200.00 living expenses(includes food, cell, travel, insurance, entertainment etc.)

Net income- Expenses= $400.00

My question, is this enough of a cushion? Or do I need to scale back HSA contributions or maybe try and spend less per month?

FYI I do have 6 months of emergency expenses in a checking/savings account.

If there's any other info needed, just let me know!

Thanks!
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Re: Will I be too cash poor?

Postby NYBoglehead » Fri Jan 25, 2013 1:54 pm

I think you're alright. $400 is a pretty large cushion. Some months you will go over budget, others you will be under.

If anything if you find that you consistently are $400 in the black every month you should look into a Roth IRA or contributing more to your 401k.
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Re: Will I be too cash poor?

Postby MrMatt2532 » Fri Jan 25, 2013 2:15 pm

I would agree I think you should be ok, especially as a single without debt. There is also 2400 a year you aren't accounting for to help you out.

Also, it appears you might be in the 15% bracket: 57k-8.55k-3.9k-6.1k-3.25k < 36.25k
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Re: Will I be too cash poor?

Postby Grt2bOutdoors » Fri Jan 25, 2013 2:29 pm

Try it for one paycheck and see what the effect is on you being able to live day to day. If it's too much, you can adjust it - if it's fine, then leave it alone. The good thing is you are making the right steps now to contribute. Good Luck!
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Re: Will I be too cash poor?

Postby Calm Man » Fri Jan 25, 2013 3:55 pm

OP, great work. I think you mean Net instead of gross because I don't see taxes accounted for. At your age, the idea is to grow your career and at least pay your bills without incurring debt. With a salary of 50K or so you can't do much more than that although you are, which is great. The one think I can suggest is that your monthly expenses seem a little higher than they HAVE to be which is good in that if you want to save a little more, you can. Again, you're doing great.
Last edited by Calm Man on Fri Jan 25, 2013 4:49 pm, edited 1 time in total.
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Re: Will I be too cash poor?

Postby armeliusc » Fri Jan 25, 2013 4:17 pm

I don't think that will be a problem at all, especially since you have enough emergency fund.
In my case, my "cushion" (take home - budgeted expenses) is nearly zero after 401K and ROTH IRA since I like to contribute as much as possible to the retirement saving, and it's been fine that way (I do have EF accessible as cash if necessary).
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Re: Will I be too cash poor?

Postby snapwa » Fri Jan 25, 2013 4:18 pm

MrMatt2532 wrote:I would agree I think you should be ok, especially as a single without debt. There is also 2400 a year you aren't accounting for to help you out.

Also, it appears you might be in the 15% bracket: 57k-8.55k-3.9k-6.1k-3.25k < 36.25k



MrMatt2532, I'm guessing that the 6.1k is the standard deduction, but what is the 3.25k?

I actually didn't realize that I had pushed my taxable income down that far, but that's great if I'm completely in the 15% bracket.
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Re: Will I be too cash poor?

Postby snapwa » Fri Jan 25, 2013 4:21 pm

armeliusc wrote:I don't think that will be a problem at all, especially since you have enough emergency fund.
In my case, my "cushion" (take home - budgeted expenses) is nearly zero after 401K and ROTH IRA since I like to contribute as much as possible to the retirement saving, and it's been fine that way (I do have EF accessible as cash if necessary).


Good to hear!

So in fact, if you were me, you would consider bumping up the 401k contribution to 20%?
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Re: Will I be too cash poor?

Postby Cherokee8215 » Fri Jan 25, 2013 6:55 pm

Looks good to me. Your e-fund will take care of the occasional one-time shocks, and you could then work on replenishing it with the ongoing $400 surplus. If you want to increase the 401k contribution, personally I'd work it up a percentage or two at a time to see how much it hurts instead of jumping 5% in one shot. I also assume your general needs are met and you're not eating ramen and sleeping on an air mattress.
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Re: Will I be too cash poor?

Postby stoptothink » Fri Jan 25, 2013 8:43 pm

After maxing my 401k, HSA, and dollar-cost averaging a Roth, my cash cushion every month is quite a bit less and I have yet to run into an issue. I was forced to buy a new car recently which almost completely depleted my EF, but I'm personally not too worried about it.
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Re: Will I be too cash poor?

Postby armeliusc » Fri Jan 25, 2013 9:16 pm

snapwa wrote:
armeliusc wrote:I don't think that will be a problem at all, especially since you have enough emergency fund.
In my case, my "cushion" (take home - budgeted expenses) is nearly zero after 401K and ROTH IRA since I like to contribute as much as possible to the retirement saving, and it's been fine that way (I do have EF accessible as cash if necessary).

Good to hear!
So in fact, if you were me, you would consider bumping up the 401k contribution to 20%?


I suppose it depends whether you think you'll stay within your allocated living expenses per month. I suggest may be "testing" this for 6 months and average it out to see how you are doing. If that's the case then I'd increase the retirement saving to as high as possible with the priority described in the wiki, with maybe a slight caveat to contribute to 401K enough to drop the tax bracket to 15% before ROTH IRA. I guess if it turns out that you need extra money you can always reduce or stop the 401K contribution temporarily (at least that's my thought for my own situation).

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Re: Will I be too cash poor?

Postby lindisfarne » Sat Jan 26, 2013 1:08 am

Whether or not you can increase your retirement contribution depends on how little you want to spend in the flexible areas of entertainment, travel, eating out, etc.
If you're at the 15% bracket: Every additional $100 put into your 401k (or trad IRA) decreases your tax due by $15. That motivates me a lot - where else can you get a 15% return on your money? (you may have to pay taxes in retirement, but you can always strategize about how to minimize those taxes down the road).

Or, you can think about opening a Roth IRA with that $$ (rather than put it in a 401k) which could function as part of your emergency fund (contributions to this Roth IRA can be withdrawn at any time without penalty, so this could double as a house downpayment fund, if you're ever thinking of buying a house). (Of course, think about the risk & time period involved with how you invest this money).

Google for a compound interest calculator & put something conservative in as the interest rate (6%) & see what that extra annual contribution will be worth in 20 years. That might motivate you ...

I'd do the calculations & make sure you'll be in the 15% bracket for 2013 - missing that by even $1000 would hurt, if you could have adjusted your contributions to get below the cut-off.
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Re: Will I be too cash poor?

Postby MrMatt2532 » Sat Jan 26, 2013 2:26 am

snapwa wrote:
MrMatt2532 wrote:I would agree I think you should be ok, especially as a single without debt. There is also 2400 a year you aren't accounting for to help you out.

Also, it appears you might be in the 15% bracket: 57k-8.55k-3.9k-6.1k-3.25k < 36.25k



MrMatt2532, I'm guessing that the 6.1k is the standard deduction, but what is the 3.25k?

I actually didn't realize that I had pushed my taxable income down that far, but that's great if I'm completely in the 15% bracket.

The 3.25k is from maxing out the hsa.
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Re: Will I be too cash poor?

Postby LFKB » Sat Jan 26, 2013 5:00 am

OP, do you get a company match on your 401k? If so, I would certainly try to reach the match, whether it be by decreasing the HSA contribution or decreasing your $400 cushion.

If there is no match, Maybe you shift some of that contribution to a Roth as a hedge against future tax rates. Plus, you'll have more control over his options in a Roth and should more easily be able to find low cost funds.

I disagree with Lindisfarne and I don't view this as a 15% return based on the tax shield. He will pay taxes when he retires and could very easily still be in the 15% tax bracket or/and rates could go up. He could actually be worse off.
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Re: Will I be too cash poor?

Postby The Wizard » Sat Jan 26, 2013 7:27 am

I wouldn't try to get it perfect in one step at age 24. Tweak it year by year and you should be good.
You'll have unexpected expenses from time to time and need to have extra cash available so you don't have to carry a CC balance.
I do this with my Roth IRA, doing manual contribs as excess cash is available. The month I do a big dive trip (like RIGHT NOW) I may have larger bills to pay than usual..
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Re: Will I be too cash poor?

Postby wastenot » Sat Jan 26, 2013 9:03 am

MrMatt2532 wrote:Also, it appears you might be in the 15% bracket: 57k-8.55k-3.9k-6.1k-3.25k < 36.25k


I understand the 57k salary part , but could you please specify what each figure listed above represents? Thank you.
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Re: Will I be too cash poor?

Postby campy2010 » Sat Jan 26, 2013 9:23 am

Sounds like you'll be fine, particularly because you already have an EF. Consider putting the extra $400/month into a Roth IRA.
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Re: Will I be too cash poor?

Postby Epsilon Delta » Sat Jan 26, 2013 5:57 pm

It may depend on whether or not you are including annual expenses (such as insurance premiums or Christmas gifts) and irregular expenses (e.g. car repairs) in your monthly budget. If you have not included these then they will need to be payed out of the extra $400 per month and that might not be enough.

It can also depend on how much cash you keep around in a semi-emergency fund. You can budget more tightly if you have a few thousand in a checking account to help the cash flow when the insurance and taxes are due in the same month your car needs new tires and the water heater burst. The annual budget may be fine, but without available savings the monthly budget can pinch.
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