Spending money sucks

So, $3700 in car repairs and maintenance, but this should get the car into great shape for the next few years.  I know, it's a lot, especially for a 12-year-old car.  But I do *not* want to take on a car payment right now: my finances for the next two-three years are completely up in the air.

I've got some money saved to cover it (though I wasn't expected it to cost quite that much; they'd estimated $2500), to it won't hurt quite as bad.  But I've also made a financial decision that I think is smart at this point.  I think.

I've stopped my voluntary contributions to my retirement funds.  That was at 9%, which will mean (after taxes) another $300 or so per check.  I was already setting aside $200 specifically for new expenses, and with the changes in the tax law and my recent raise, I should be getting an additional $200 a check.  So, that's $700 every two weeks that I'm going to explicitly set aside for this expense and future expenses.  With my tax refund (which is usually at least $1000 and sometimes a lot more), I should be in decent shape by my birthday.

I did the math, and stopping my contributions doesn't change my overall totals much.  The account is already growing more from internal returns than from contributions, and the company still puts in 6% on my behalf regardless of what I do.  Plus, I'm planning on pulling out chunks for school anyway.  My estimates were all based on having $340k-$350k in my accounts by my birthday, and I'll still be in that window even if the market slows down significantly (I'm currently getting 15-20% returns and budgeting for 9%).  And paying off debt and having actual cash available penalty-free for moving or other expenses seems like the more responsible thing to do at this point.

... I know, this sounds like rationalization rather than reasoning, but it's actually something I've thought a lot about.  Paying off debt *does* make more sense than investing, since the debt is at higher interest than I'm getting on the market (though only barely right now).  Really, the issue is the withdrawal penalty later: for school fees, it's waived, but I should save up for moving and deposit and such as well.  I'll probably draw a financial "line" and budget around that: if I hit the line early (higher tax return, manage to spend less in general, etc.), I'll start contributions up again.

Basically, I'm at $324k right now.  With the company's 0.06% contribution only and an assumed 9% annual growth rate, I'll be at $341k just after my birthday (end of June).  If I transition to part time at that point (20 hours a week at the same wage), and assuming I go to a UC and end up paying for everything, I'm counting on about $20k taken out at the end of August each year for two years.  I should still be at $370k by my 43rd birthday, which is still over 3x my current annual salary and still 2 years ahead of schedule - and again, that's with just the company's contributions and nothing from me.

If I switch back to my 9% contribution when I go to part time (in addition to the company's 6%), I'll be at $382k at 43 - so the difference isn't all that much: about $10k in contributions and $2k in interest.  I know, it adds up over time, and so it's worth it to start back up again as soon as reasonable.

But I do think this is the responsible decision for where I am at the moment.  I just hope I'm right.

2 comments:

naturgesetz said...

I always find it scary when someone considers stopping contributions to their retirement plan. At $700 biweekly, you'll have enough to pay the $3700 in 12 weeks. Then you'll be setting $18,400 aside per year for what are apparently as yet unincurred expenses. If you really expect those future expenses to be that much, I suppose it makes sense, especially if you expect them to come when your earnings are reduced by your going part time. But as you realize, you never get what your retirement contributions would have earned. So I hope you'll keep the goal of resuming voluntary retirement contributions very much in mind.

I'm a retired federal employee, with a pension of about $35,000 per year, plus an annuity that is currently giving me $10,000 yearly. I also have an IRA which I rolled over from my "401k." I've been taking $5,000 yearly from it. I can live wll enough on that, but a major expense, such as needing to replace my 1997 car or a major repair to my house, would mean giving up my symphony concerts and my bi-monthly restaurant dinners, and my yacht club membership — not poverty by a long shot, but a real change in lifestyle. If the government had made the "401k" available 20 years earlier and I had participated all along, there would be a lot more in my IRA now, and I could afford to travel, and still not worry about being hit by large expenses.

It's true that almost nobody ever thinks he has enough, but it's still prudent to set aside what you can when you can.

Good luck in all you've planned.

Austin said...

Yeah, I'm fighting down nerves doing this, but as I said, I'm way ahead of "targets".

The big deal is school. I mean, I hope I get scholarships and funding, but if I don't, then I'll be spending tens of thousands of dollars a year; the amount I'm setting aside now would just becoming out of that, so it's not going to make much of a difference (I'll lose a couple grand in interest, but that's it). If I do get the scholarships, then I'm *really* ahead on funding and it doesn't matter if I stop for a few months anyway.

This isn't the long-term plan, just a temporary thing. And as I said, I'm still getting the 6% from work, so it's not like nothing is going in.

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