1st Quarter Finances

I love this time of year.  We are just about through the worst of winter (which means spring and summer are on the way) and it’s bonus and raise time at work.  On top of that, it’s tax time which usually means we get some sort of tax refund as well.

This year it’s looking like I’ll be getting somewhere around a 6% raise.  I haven’t found out exactly what I’ll be getting but my boss hinted around at it during my performance review.  I should find out next week.

This year’s raise will actually increase my paycheck substantially because I’ve already maxed out my 401K contribution so I can’t just redirect the raise towards my 401K.  I think I’ve decided that what we’ll do is increase my wife’s 401K contribution an amount equal to my pay raise (after taxes).  This is actually going to increase my wife’s contribution rate to a somewhat ridiculous level but it helps us get her to the IRS maximum ($16,500) as well so we’ll be putting away $33,000 a year in our employer sponsored plans.  We are also contributing to a ROTH IRA as well to help protect us from the inevitable taxes we’ll face in retirement.

My wife is also expecting a raise but it will be a much more modest 2-3%.  Once we get that booked in our financial spreadsheet I believe we’ll be approaching the point that we are only spending about 46% of our post tax and post investment income.  What I mean by this is that after we fully fund our retirement accounts and pay all of our income taxes our budgeted monthly expenses we will have 54% of our checks left.  While the percentage has increased over the years as we’ve gotten pay raises etc, our actual budget hasn’t changed much, and in fact has decreased.  We are still keeping our expenses at about the same levels as we have for the last 10+ years even though our income has increased by roughly 50%.  We’ve worked hard to keep lifestyle inflation in check which has really helped us with our financial goals.  Sure, we’ve splurged on things over the years but we’ve always paid cash.

I’m in the middle of reading the next “Millionaire Next Door” book called, “Stop Acting Rich and Start Living Like a Real Millionaire”.  While it seems to be some of the same type of content from the original book, it is reinforcing our approach to personal finance and it’s just one more way we are keeping the strategy fresh in our minds.  I think these books have been very helpful for me to keep things in perspective.  When I see my neighbor buy a fancy new car, I think back to the books and remember my favorite line from the first book: “Big hat, no cattle”.  While I’m sure some of my neighbors do have the income to buy fancy new things, I know that, statistically, many of them are mortgaging their futures to have fancy things today.  I’m much happier meeting my goals for the future and then paying cash to enjoy life today.

Update: As Sally pointed out in the comments, the IRS maximum 401K contribution for 2011 is $16,500.  I have updated the post to reflect that and we’ll be adjusting our finances further to make sure we take advantage of the full amount.