Can We Afford to Move-In

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CaliforniaInvestor
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Can We Afford to Move-In

Post by CaliforniaInvestor » Tue May 09, 2017 1:36 pm

Hello fellow Bogleheads:

My partner and I are considering moving in together sometime this year. However, doing a rough estimate of what we can afford is giving me concern. See below:

$126,400 - income
-$31,900 - taxes
$94,500 - after-tax income

-$30,000 - living expenses (includes health insurance, food, clothing, gas, etc.)
$64,500 - free cash flow

-$18,000 - 401k savings (only I have access to a 401k)
-$11,000 - roth IRA savings ($5,500 year * 2)
-$12,000 - down payment savings ($500/month * 2)
-$12,000 - new car savings ($500/month * 2)

$11,500 - left over

With only $11,500 left over, we can afford about $950 a month...obviously not going to work here in Southern California to afford a one-bedroom apartment for ourselves.

Am I missing something here? I feel like we out-earn our other friends who are also in their mid to late-twenties, but yet we still have yet to leave our parent's houses due to the fact that we can't sustain our current savings rates if we choose to rent. I suppose most of my fellow millennials simply don't save for retirement nor have a down payment and new car fund. Without compromising this for ourselves, it appears we're not ready to move in just yet. Thoughts?
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Goal33
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Re: Can We Afford to Move-In

Post by Goal33 » Tue May 09, 2017 1:45 pm

This is easy. Pick one lucky set of parents and both of you live there. :wink:
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CaliforniaInvestor
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Re: Can We Afford to Move-In

Post by CaliforniaInvestor » Tue May 09, 2017 1:47 pm

Goal33 wrote:This is easy. Pick one lucky set of parents and both of you live there. :wink:
We've definitely considered it. Our living conditions at home are not terrible. I've been prodding my parents with the idea of building a room onto the back of the garage for us two. :wink:
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bloom2708
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Re: Can We Afford to Move-In

Post by bloom2708 » Tue May 09, 2017 1:47 pm

I would eliminate the car savings until the down payment is established.

That gives you enough to rent. $500/month * 2 is too much for cars when you are trying to establish yourselves.
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ysette9
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Re: Can We Afford to Move-In

Post by ysette9 » Tue May 09, 2017 1:48 pm

Nicely done prioritizing savings first. I have to ask though, how much do you already have saved for the next car? At $12k a year, that is a replacement car right there each year, year after year. Do you really need to save that much? If I had the option of moving out of my parents' house versus saving up for a brand-new car, I'd be on Craigslist in an instant to find a $5k used Honda and start looking at rental listings at the same time.

Let's say for the sake of argument that you have $12K already saved in the car fund. That could cover two used, high-reliability commuter cars. Take that $12K a year and add to the $11.5K you have left over, and that starts to look more reasonable for finding a rental. Bonus points if you can live somewhere close enough to work to be a one-car household and/or bike/take public transit.
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researcher
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Re: Can We Afford to Move-In

Post by researcher » Tue May 09, 2017 1:48 pm

You have nearly $65K in "free cash flow."
None of the savings categories you have listed are a necessity.
Looks like you will need to forgo one or more of them until you can increase your incomes.

How about keeping your existing car, going without a car, or buying a $5K beater. That would immediately free up $12K a year.
I assume you can find a decent apartment for $2K/month, right?

MI_bogle
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Re: Can We Afford to Move-In

Post by MI_bogle » Tue May 09, 2017 1:50 pm

You have 64K of available money after paying for living expenses. Of course you can afford to get your own place.

You'll just have to decide if you want to prioritize living on your own, or saving for retirement. Well actually you don't even have to do that, you can just dial the 401k back a little bit and you'll be fine.

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DaftInvestor
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Re: Can We Afford to Move-In

Post by DaftInvestor » Tue May 09, 2017 1:53 pm

Saving 23% of your pre-tax income for retirement is great - but most of us weren't doing that starting out (and I doubt your friends are) but I wouldn't cut back unless you really had to. The number that sticks out to me is saving $1000 a month for cars. I know many southern Californias like their cars but do you really need $1000 a month? Is this just temporary until you buy a car?
Perhaps you can cut back on some other living expenses (food/clothing?) as well.
Its a matter of what your priorities are (living with Mom/Dad or saving for a new car).

meaghansketch
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Re: Can We Afford to Move-In

Post by meaghansketch » Tue May 09, 2017 1:55 pm

There's a middle ground between "not saving for retirement" and maxing your retirement accounts. You guys can move in together, you just need to prioritize. Are the car(s)? so much on their last legs that you need to save $12,000/year to replace them? If you cut that savings back slightly and cut your retirement savings back slightly you could find an extra $500/month which is probably all you need. Don't put your lives on hold so that you can retire with $4 million instead of $3 million.

CaliforniaInvestor
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Re: Can We Afford to Move-In

Post by CaliforniaInvestor » Tue May 09, 2017 2:20 pm

I do realize now that the $500/month per person car savings in excessive. That's a $30,000 car for each of us every five years. :shock: :oops: I've halved that to be $250/month for each of us. My partner's car is on its last legs, but my own is a 2015 Honda Accord I plan to drive to its own death. Even that $250/month is probably too much for me.

I also halved the down payment savings to $1,000/month. That's no way going to give us the savings rate needed to afford SoCal real estate any time soon, but we can work at increasing our incomes.

Thank you for giving me a much-needed reality check. We take such great pride in our ability to save that it tends to swallow up living life. You're only young once, I suppose.
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JGoneRiding
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Re: Can We Afford to Move-In

Post by JGoneRiding » Tue May 09, 2017 2:29 pm

bloom2708 wrote:I would eliminate the car savings until the down payment is established.

That gives you enough to rent. $500/month * 2 is too much for cars when you are trying to establish yourselves.
This. You can totally afford to move in together. Your just can't do it with a huge savings rate and excessive car fund savings .

Also 30k a year for "living" is super high. I bet you find tons of ways to cut that back.

TX_Man
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Re: Can We Afford to Move-In

Post by TX_Man » Tue May 09, 2017 6:19 pm

meaghansketch wrote:There's a middle ground between "not saving for retirement" and maxing your retirement accounts. You guys can move in together, you just need to prioritize. Are the car(s)? so much on their last legs that you need to save $12,000/year to replace them? If you cut that savings back slightly and cut your retirement savings back slightly you could find an extra $500/month which is probably all you need. Don't put your lives on hold so that you can retire with $4 million instead of $3 million.
+1

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gunn_show
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Re: Can We Afford to Move-In

Post by gunn_show » Tue May 09, 2017 6:58 pm

researcher wrote:You have nearly $65K in "free cash flow."
None of the savings categories you have listed are a necessity.
Looks like you will need to forgo one or more of them until you can increase your incomes.
+1. Priorities vs necessities. You have $5416.66 in monthly free cash flow. If you cannot afford an apartment then something is wrong in the world. You are prioritizing buying new vehicles (when you currently have a 2015... LOL!!!) and retirement (over-saving for retirement... before even moving out of mom's house? weird one). Cost of living is typically every human's #1 line item... but you have it last and are stating you cannot afford to live (outside mom's) because your line items are backwards.

This is easily fixed. Move full car fund to apartment fund. Done. Enjoy.

And in terms of cars and car funds, do some more thread research or boglehead's guide to investing... with a 2015 vehicle, you are pretty far off from needing a new car, in BH's terms... and I'm a car guy "so I get it" ... but still. You are a ways off from needing a new car, and worst case, you finance it (Kia always has 0% 5 years). You cannot finance moving out of mom's house. PRICELESS ;)
"The best life hack of all is to just put the work in and never give up." Bas Rutten

lazydavid
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Re: Can We Afford to Move-In

Post by lazydavid » Wed May 10, 2017 7:18 am

bloom2708 wrote:I would eliminate the car savings until the down payment is established.

That gives you enough to rent. $500/month * 2 is too much for cars when you are trying to establish yourselves.
This. We barely put away that much, and we're established with two six-figure salaries, a well-funded retirement, and 60% equity in our home. Since we keep our cars for at least 10-12 years, this is sufficient to buy a $60-70k car for cash every 5-6 years, not that we've ever spent that much. Nor should you, if you're just starting out.

dbr
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Re: Can We Afford to Move-In

Post by dbr » Wed May 10, 2017 8:22 am

You don't make enough money to live in Southern California (or at that rate most places you are likely to find that kind of employment) and also save at that rate. I think others are right that you can back off the savings and at least have a life. You should expect incomes to go up over time and you are just starting. You are already better off than the majority of your age range, most of whom are not saving anything.

Xpe
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Re: Can We Afford to Move-In

Post by Xpe » Wed May 10, 2017 8:38 am

"Am I missing something here? I feel like we out-earn our other friends who are also in their mid to late-twenties, but yet we still have yet to leave our parent's houses due to the fact that we can't sustain our current savings rates if we choose to rent."

The simple answer, is that most of your friends aren't saving 53k per year (more than half of your after-tax income).

NorCalDad
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Re: Can We Afford to Move-In

Post by NorCalDad » Wed May 10, 2017 8:38 am

I'd like one of the resident tax experts to weigh in, but even accounting for California taxes and FICA, my back of the envelope math suggests that tax amount is high for two people at your combined income level with one maxing out 401k and two people presumably getting pre-tax health insurance. Do you get large refunds each spring?

I'm all for saving, but at some point, I think living in your own place takes priority over cars, future home and retirement. Absent that shift, I'd look to move to a lower COL metro where you can afford a place together if your careers will allow it.

ysette9
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Re: Can We Afford to Move-In

Post by ysette9 » Wed May 10, 2017 9:36 am

As others have hinted at, before you make any big changes, this is a great time to really sit down and think about what your ultimate goals are in life. You are in a fantastic position right now being able to save so much money, so make sure you know why you are doing it. This is the very best time every in your life to be maxing out the 401(k)s, so I would love to see you be able to continue that if possible.

Something to consider: Right now you are saving $53k out of $94.5K take-home pay. That is an impressive 56% savings rate, even with you spending $30k for living expenses without paying rent (I agree with others - what are you spending your money on there?!). If you subscribe to the 4% rule/25x living expenses as a rule of thumb for how much you need to retire, then that savings rate translates into a total working career of 14.5 years to reach financial independence. To me, that is a pretty kick-butt awesome position to be in. http://www.mrmoneymustache.com/2012/01/ ... etirement/

Sit back for a moment and dream about where you will be in 15 years. If we are all so lucky, we will still be here, only older and probably a little uglier. :) What if you could be older, a little uglier, and totally free financially to pursue anything in the world that struck your fancy? Maybe that isn't your cup of tea, and being FIRE doesn't necessarily mean not working if your work is meaningful, but it could mean the freedom to go part-time once kids arrive, pursue a side hobby, work for a non-profit, take a gamble on a start-up, try your hand at homesteading, do slow travel around the world, or many other things. I'd encourage you to weigh those options against the satisfaction of driving a new car every 5 years when making decisions about where to allocate your money.

Good luck. You have a wonderful problem to sort out here.
Let us go then, you and I, when the evening is spread out against the sky, like a patient etherized upon a table.

CaliforniaInvestor
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Re: Can We Afford to Move-In

Post by CaliforniaInvestor » Wed May 10, 2017 3:27 pm

For some of you asking why how we spend $30k in living expenses without rent between just two young people: we budget a (very generous) $1k a month for living expenses each, so $1k x 2 people x 12 months = $24k. That $24k encapsulates everything; car maintenance, dining out, clothing, books for me (I'm in graduate school for engineering at UCLA and have the full tuition already saved up), etc. We usually spend below that amount, but do enjoy dining out often. Perhaps too often. We could always cut this back easily. We also expect to use this $24k capacity to buy furniture and home goods for our apartment slowly over time.

The extra $6k is $2.6k for health insurance for my partner (not given by his employer) and $3.4k to save in an HSA. So, in reality, we spend a generous $28.4k per year. Sounds high, I know, but it encapsulates a lot.

Thank you so much to ysette9 for calculating my savings rates and that impressive FI number. I didn't know financial independence could only be 14.5 years away for me if we keep up the savings rate. :shock:

As for the high taxes, I've calculated my own taxes many times using the ADP calculator and those are the results I get. I do deduct the $18,000 for my 401k deduction. Don't underestimate the power of California income taxes. :greedy: We don't get massive tax refunds each year and take out more exemptions from Federal taxes than a W4 would specify.

Thank you all for calming my nerves about not being able to afford this. In a HCOL area like Southern California, a Boglehead philosophy can easily conflict with what appears in 'real life.' I appreciate the advice to move to a LCOL area eventually. We will continue to consider that if we can't raise our incomes over the coming next couple years.
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student
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Re: Can We Afford to Move-In

Post by student » Wed May 10, 2017 3:47 pm

CaliforniaInvestor wrote:For some of you asking why how we spend $30k in living expenses without rent between just two young people: we budget a (very generous) $1k a month for living expenses each, so $1k x 2 people x 12 months = $24k. That $24k encapsulates everything; car maintenance, dining out, clothing, books for me (I'm in graduate school for engineering at UCLA and have the full tuition already saved up), etc. We usually spend below that amount, but do enjoy dining out often. Perhaps too often. We could always cut this back easily. We also expect to use this $24k capacity to buy furniture and home goods for our apartment slowly over time.
UCLA did not offer you a tuition waiver?

CaliforniaInvestor
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Re: Can We Afford to Move-In

Post by CaliforniaInvestor » Wed May 10, 2017 3:54 pm

student wrote:
CaliforniaInvestor wrote:For some of you asking why how we spend $30k in living expenses without rent between just two young people: we budget a (very generous) $1k a month for living expenses each, so $1k x 2 people x 12 months = $24k. That $24k encapsulates everything; car maintenance, dining out, clothing, books for me (I'm in graduate school for engineering at UCLA and have the full tuition already saved up), etc. We usually spend below that amount, but do enjoy dining out often. Perhaps too often. We could always cut this back easily. We also expect to use this $24k capacity to buy furniture and home goods for our apartment slowly over time.
UCLA did not offer you a tuition waiver?
For graduate school and at my income? Absolutely not, unfortunately. I'm in their online engineering graduate program, so it costs even more than regular state-supported graduate school. But, it allows me to work full-time and still complete a graduate degree in two years.

I also went to USC for undergrad and am just counting myself lucky to be 26 and not have any student loans despite covering a sizable chunk of my undergraduate education myself and all of my UCLA graduate school tuition.

As I complete UCLA now in less than a year, I figured it would be a good time to move in with my college partner of three years, to be closer to my work.
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Nate79
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Re: Can We Afford to Move-In

Post by Nate79 » Wed May 10, 2017 6:12 pm

What is the $1k per month for a down payment?

student
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Re: Can We Afford to Move-In

Post by student » Wed May 10, 2017 6:16 pm

CaliforniaInvestor wrote:
student wrote:
UCLA did not offer you a tuition waiver?
For graduate school and at my income? Absolutely not, unfortunately. I'm in their online engineering graduate program, so it costs even more than regular state-supported graduate school. But, it allows me to work full-time and still complete a graduate degree in two years.
Oh. I see. I automatically assumed that you are doing it the traditional way.

Saving$
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Re: Can We Afford to Move-In

Post by Saving$ » Wed May 10, 2017 7:05 pm

OK, so between the two of you, you make $126k/year. Partner has job that does not offer health insurance or 401k, so let's assume his job pays less. So partner makes about $40k/year, and you make about $86k/year?

1. $86k/year still seems low for a full time engineering job, but if they allow you to be flexible and get your graduate degree, it is probably worth it. My point is that your earnings potential is much higher as soon as you finish the degree, which is in at most 2 years if it is a 2 year program. If the preceding is true, and your car is a 2015, then forgo saving for a car for the next 2 years, get your own place, finish your degree, and once you have your degree you can probably use the increased earnings to replenish your car saving fund within a year or two...I agree with you on continuing to max the 401k, Roth and HSA...

2. Taxes: Presumably you are both filing as single. If that is the case, the $40k earner should be paying hardly any taxes, and $31k taxes seems too much on $86k/year. Take another look at this.

3. Combined vs. Separate: I get that you want to look at this as combined income. However, you may wish to defer that until you are married, if that is a possibility. If your partner needs a car, it would be a good idea for partner to remain living at parents house until the car is acquired and paid off. That may reduce stress after you live together as it will allow partner to contribute more equally to household expenses even on a lower income. The house savings can be yours, from your income, that becomes both of yours once you are married. Marriage may also afford tax breaks, and give you the option of adding your spouse to health insurance at your work for much lower cost.

wfrobinette
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Re: Can We Afford to Move-In

Post by wfrobinette » Thu May 11, 2017 8:22 am

CaliforniaInvestor wrote:Hello fellow Bogleheads:

My partner and I are considering moving in together sometime this year. However, doing a rough estimate of what we can afford is giving me concern. See below:

$126,400 - income
-$31,900 - taxes
$94,500 - after-tax income

-$30,000 - living expenses (includes health insurance, food, clothing, gas, etc.)
$64,500 - free cash flow

-$18,000 - 401k savings (only I have access to a 401k)
-$11,000 - roth IRA savings ($5,500 year * 2)
-$12,000 - down payment savings ($500/month * 2)
-$12,000 - new car savings ($500/month * 2)

$11,500 - left over

With only $11,500 left over, we can afford about $950 a month...obviously not going to work here in Southern California to afford a one-bedroom apartment for ourselves.

Am I missing something here? I feel like we out-earn our other friends who are also in their mid to late-twenties, but yet we still have yet to leave our parent's houses due to the fact that we can't sustain our current savings rates if we choose to rent. I suppose most of my fellow millennials simply don't save for retirement nor have a down payment and new car fund. Without compromising this for ourselves, it appears we're not ready to move in just yet. Thoughts?
You're making more than 75% of the adults out there but year you feel you can't afford to live on your own. Sure savings is nice but so is an independent life. Your 401k savings needs to go above the tax line. Consider a trad IRA for the tax savings now. You could drop your taxable income to < 97k. Do you have health insurance through work? if so that goes above the tax line as well.

Get out of your parents house. Skip the new car savings. Stop eating out, buy cheaper wine/booze, stop buying unnecessary clothing/shoes. You're saving 22% of your gross income for retirement and another 20% for cars and house.

CoAndy
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Re: Can We Afford to Move-In

Post by CoAndy » Thu May 11, 2017 8:50 am

From one Accord owner to another, if you currently have a 2015 Honda Accord, you can probably just save $100 a month for your next car purchase. You most likely will not need that money for 7-10 years.

wfrobinette
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Re: Can We Afford to Move-In

Post by wfrobinette » Thu May 11, 2017 9:30 am

CaliforniaInvestor wrote:For some of you asking why how we spend $30k in living expenses without rent between just two young people: we budget a (very generous) $1k a month for living expenses each, so $1k x 2 people x 12 months = $24k. That $24k encapsulates everything; car maintenance, dining out, clothing, books for me (I'm in graduate school for engineering at UCLA and have the full tuition already saved up), etc. We usually spend below that amount, but do enjoy dining out often. Perhaps too often. We could always cut this back easily. We also expect to use this $24k capacity to buy furniture and home goods for our apartment slowly over time.

The extra $6k is $2.6k for health insurance for my partner (not given by his employer) and $3.4k to save in an HSA. So, in reality, we spend a generous $28.4k per year. Sounds high, I know, but it encapsulates a lot.

Thank you so much to ysette9 for calculating my savings rates and that impressive FI number. I didn't know financial independence could only be 14.5 years away for me if we keep up the savings rate. :shock:

As for the high taxes, I've calculated my own taxes many times using the ADP calculator and those are the results I get. I do deduct the $18,000 for my 401k deduction. Don't underestimate the power of California income taxes. :greedy: We don't get massive tax refunds each year and take out more exemptions from Federal taxes than a W4 would specify.

Thank you all for calming my nerves about not being able to afford this. In a HCOL area like Southern California, a Boglehead philosophy can easily conflict with what appears in 'real life.' I appreciate the advice to move to a LCOL area eventually. We will continue to consider that if we can't raise our incomes over the coming next couple years.
HSA should be called out separately as an investment.

ADP calc. Did you include your health insurance in the deduction pretax.

Being financially independent is a good goal to have but don't underestimate retiring so early may not be all that rewarding from an intellectual standpoint.

stoptothink
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Re: Can We Afford to Move-In

Post by stoptothink » Thu May 11, 2017 10:28 am

wfrobinette wrote:
CaliforniaInvestor wrote:Hello fellow Bogleheads:

My partner and I are considering moving in together sometime this year. However, doing a rough estimate of what we can afford is giving me concern. See below:

$126,400 - income
-$31,900 - taxes
$94,500 - after-tax income

-$30,000 - living expenses (includes health insurance, food, clothing, gas, etc.)
$64,500 - free cash flow

-$18,000 - 401k savings (only I have access to a 401k)
-$11,000 - roth IRA savings ($5,500 year * 2)
-$12,000 - down payment savings ($500/month * 2)
-$12,000 - new car savings ($500/month * 2)

$11,500 - left over

With only $11,500 left over, we can afford about $950 a month...obviously not going to work here in Southern California to afford a one-bedroom apartment for ourselves.

Am I missing something here? I feel like we out-earn our other friends who are also in their mid to late-twenties, but yet we still have yet to leave our parent's houses due to the fact that we can't sustain our current savings rates if we choose to rent. I suppose most of my fellow millennials simply don't save for retirement nor have a down payment and new car fund. Without compromising this for ourselves, it appears we're not ready to move in just yet. Thoughts?
You're making more than 75% of the adults out there but year you feel you can't afford to live on your own. Sure savings is nice but so is an independent life. Your 401k savings needs to go above the tax line. Consider a trad IRA for the tax savings now. You could drop your taxable income to < 97k. Do you have health insurance through work? if so that goes above the tax line as well.

Get out of your parents house. Skip the new car savings. Stop eating out, buy cheaper wine/booze, stop buying unnecessary clothing/shoes. You're saving 22% of your gross income for retirement and another 20% for cars and house.
This. Most of us on this board are prodigious savers, but at your age, with that income and savings rate, and in this situation: GET OUT. Not that I don't want to support the future of my kids or help them when they need, but if they were living in my home as adults and spending a lot of discretionary income on eating out, clothes, alcohol, and other consumption items, I'd be a little perturbed.

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englishgirl
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Re: Can We Afford to Move-In

Post by englishgirl » Thu May 11, 2017 12:12 pm

Your 401k should be coming out pre-tax. If your partner does not have a retirement plan through work, then they should be saving pre-tax in a traditional IRA (there are no income limits on a traditional deductible IRA for a single person having no retirement plan through work).

Cut the car savings as already mentioned. I save <$200 per month for my new car, so to me $250 a month is just fine, especially for you. If your partner's car really needs to be replaced, then $500 to get that saved up quickly might be more appropriate. Look into the "smaller" budgeting items that are part of your living expenses - cell phone plan, car insurance, gas (if your partner is driving a gas guzzler, maybe it's time to replace it right now to something more fuel efficient). Are you eating out a lot? Maybe that will change if you have a place together.
Sarah

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