How We Invested $37K in One Year

We are DINKS (Dual Income, No Kids).  Because of this, we have our greatest savings ability right now.  This also means we have great spending power if we so choose (DINKS are advertised to more than any other demographic of people, children being a close second).  We may not have another time in our lives when we’ll have this level of spending or savings leverage.

Sometimes, we really want things.  Because of this, we have felt the pull to use our DINK status to purchase a lot of toys: new cars, bigger house, nicer clothes, and the best in technology.  However, frivolously spending our money on these things would do a massive disservice to our future selves.  Children, career changes, and other life circumstances are unpredictable and they strongly influence income level and savings rate.

So, what do we do with our money instead of buying these things?

We make hay while the sun shines.  After we’ve paid out our monthly expenses and charitable contributions, we invest everything that remains.*

*Note: We paid off all of our non-mortgage debt before doing this.

The Decision to Act

We were discussing our finances on our back patio one day, the setting summer sun as our canvas.  I had been running the numbers again and again and realized just how much we we would be netting every month.

As we soaked in the waning sun, I asked Keli:

J: When it’s all said and done, how much are you going to put into your retirement fund at work this year?

K: About $12K.

J: And what’s the max you can put in?

K: This year?  It’s $18,000 per person for 401(k) or 403(b). 

And then I wondered: what are we doing with all the extra money we have lying around?

The Results Were In

Our savings and checking accounts were bloated.  I had an OCD-like yearning for our accounts to have a certain number in them.  It made me feel safe. Secure. Our emergency fund was well beyond the goal that we had set for it, and I wanted it to be higher.

The reality is that we could have used that excess cash in other ways–much more productive ways.  This discussion sent us on a path to maximizing every extra dollar we had thereafter.

How We Did It

Maxing out the 401(k)

We let our conversation on the patio marinate for a few weeks before finally deciding that Keli would adjust her contributions to max out her account by the year’s end.  This meant much more of her check would be siphoned off each month in order to “catch up” and get it into the market.  This was a great first step, except we soon realized we would still have a surplus after all our monthly expenses were paid out.

Our current investment for 2017: $18,000

Maxing Out Roth IRA’s

Roth IRA’s were the second move we made in the investment playbook.  Most  individuals are allowed to max out their own IRA every year.  Last year, the max was $5,500 per individual.  If you’re keeping up with our trend here, we set up our IRA’s online through Vanguard and maxed them out immediately for 2017.  Another 11K in the books.

What is a Roth IRA?  It’s an account you invest into with post-tax money.  The benefit of a Roth is that it grows tax free and you can withdrawal your money at age 59.5 without having to pay taxes on it. Many of the same funds you invest into in the stock market in your 401(k) or 403(b) are available in IRAs.

Current investment for 2017: $29,000

Keli’s Work Contribution

Keli’s old job contributed a percentage of her salary to her 401(k) each year.  This was a great benefit and at the time was just north of $5,000.  Her new job won’t offer this same benefit, but it will offer up to a 4% match on anything she puts into her retirement.

Current investment 2017: $34,000

Jake’s Pension

6% of each of my paychecks is used to fund my pension.  Although pensions aren’t a perfect system, I will receive one when I retire someday, and each year my pension has produced roughly $3k.  Believe me, I would much rather have the option of taking my 6% and investing it elsewhere, but it’s a mandatory contribution. When I retire I’ll have the option of taking monthly payouts of my pension, or I’ll be able to take it in a lump sum form.

Total invested for year 2017: $37,000~

No Better Time Than the Present

The importance of investing now, right now, cannot be ignored.  It doesn’t matter if you can’t spell IRA, you need to be investing in your future in some capacity.  Start small.  See what your employer offers you in terms of 401 (k), 403(b), 457, and the like.  Consider opening a Roth IRA through Vanguard.com.  Anything will help get your momentum going in the right direction.

It doesn’t matter if you’re a DINK or not.  You have to find ways to reduce your spending, increase your savings, and maximize your investing for the future.

We were only able to do this because we worked our tails off to eliminate our student loans, didn’t overpay for our house, and have no other outstanding consumer debt.

This is just the beginning

We are going to take it to another level in 2018–planning to invest about 50% more than we did this past year.  We learned so much at the end of 2017 from others who maximize their investing and saving that we’re going to apply this knowledge to our situation this year.  Financially speaking, this will be our biggest undertaking yet.  We might have to make adjustments as 2018 unfolds, and we expect that.  But one thing is for sure–we are well on our way to a more hopeful future.  One paved with bricks of freedom, and ultimately, peace of mind.

 

 

 

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17 Replies to “How We Invested $37K in One Year”

  1. Hey Jake and Keli,

    Nice article! I agree that it’s crucial to save especially as a DINK. I have a few comments and thoughts about my method of saving. My investment options are currently returning a lot more than my APR on my car loans so I haven’t paid them off early. Also, my mortgage rate is higher than my car loans so I am putting more money towards that instead of paying the cars off early.

    1. Hi Justin! I agree that car debt can be had at a very low interest rate today – we have had some car debt in the past and would consider taking it on again. However, I think the issue is the mindset that goes into purchasing a car with a loan. It enables people to think they can afford much more car than they actually can just because they can make the payment. From our standpoint, we just don’t want that money tied into something that is dropping like a rock in value. I totally get your reasoning though! I just think the average person should think twice about the purchase price of a vehicle.

      1. Keli,

        Great points! I agree. It sure can be scary to be approved for so much credit when in reality, we can’t afford it.

  2. Another great post, thanks! Any wisdom on when it’s better to opt for sending extra money towards the mortgage rather than retirement? We are in good shape with retirement and I cringe looking at where my mortgage dollars really end up!

    1. Hi Terese!

      That’s awesome that you are in good shape for retirement. I would still recommend putting money into a regular investment account (non-retirement) that you could set up through Vanguard or some other company. The reason I say this is that the stock market will almost always have higher returns (7-8%) than a mortgage interest rate (3-4%) with today’s rates. That way, whenever you wanted to pay off your mortgage, you could cash in your investment account to do so. I definitely think there is validity in just paying down the mortgage though if you feel comfortable with your retirement situation. There’s nothing like having a paid-for house and there are a lot of people that strongly believe in paying off the mortgage as quickly as possible. Sometimes emotions are more powerful than the math. Hope this helps!

      1. Thanks! That really does help–and I should clarify that what we call retirement is actually a Vanguard investment. I’m hoping to do a bit more research and then convince my husband that our tax return should go towards our mortgage!

  3. Love reading all these posts… keep up the great work! It is quite inspirational.

    I too am quite interested in attaining FI and have been on this pursuit for about two years now. I would say you are blessed in that you both are on the same page… it would be quite challenging to make it successful if one person was a spender and one a saver.

    I am curious… what are you investing in when you say you invested in Vanguard and your company 401K plan? Common stock index fund and bond funds? Are you using the general calculation of 110 minus your age to determine how much of bond funds to own versus stocks? Or do you let a lifecycle fund (Retirement 2050 fund, say) to accomplish this on your own? Are you paying somebody for investment advice or doing it on your own? Who manages the 401K at your company? Does your company provide a Roth 401K?

    Also… do you utilize an HSA? I would imagine that since you are both young and healthy, utilizing the tax benefits of the HSA would be right up your alley. Perhaps you are waiting on posting on that subject later.

    I love that you also did not even mention social security being a part of your plan. I feel that our generation (millennials) are on the page of… if it’s there, it’s there, but don’t plan on it being there, or at least as it was promised. The deficit will be a brutal reality for us to eventually have to handle one way or another (Does Grandma’s Benefits Imperil Junior’s Future – Podcast by Intelligence Squared by NPR is a lovely listen on this topic). Which is why I also do not think that the Roth will be as powerful as it has been promised… the government will find a way to get their fair share by imposing something like a VAT tax which is used in a majority of the counties on this fine planet. IMO.

    Since you mentioned Mr. Money Mustache, I would imagine you have heard of Root of Good, the Mad Fientist, and Radical Personal Finance with Joshua Sheets. If not, I would highly recommend them.

    Please keep the posts coming!!

    1. Hi Mark!

      Thanks for the awesome comment! We love the feedback.

      Our investments in Vanguard (IRAs) and in my 401k are all in index funds – I believe our IRAs are 100% VTSMX right now with the 401k being split between VTSAX, VTSIX, and VTSMX (total market, international, and small cap). Right now, we are 100% in stocks – just feel that we are young enough that it will give us the best return on our money at this point. As we get a little closer to retirement, we will probably move some into bonds. I don’t like Retirement Target funds because the fees are usually quite a bit higher than Vanguard’s index funds. We don’t pay anyone for investing, but have read a lot and educated ourselves. When you pay others to help you invest, you are usually sacrificing at LEAST 1% in additional fees, and we just aren’t willing to risk it. We feel that index funds outperform investors the majority of the time, and we don’t have to pay their super high fees. I actually just switched companies. My old 401k is through Nationwide but my new one is through TD Ameritrade. Luckily, both have excellent fund options in them. My company does provide a Roth 401k, but I prefer the traditional. Since we have the Roth IRAs, I like that we are diversifying ourselves. I also don’t think we will need as much money in retirement as what we are paying taxes on, so I anticipate a lower future tax rate (or 0% if we play our cards right).

      We are both contributing to HSAs this year (2018). I agree that it is an awesome tool and we should have done it long ago – there will definitely be a future post on that! We are also going to invest in Jake’s 403(b) that he gets from work.

      I completely agree about not relying on social security – it’s so far in the future and so unpredictable that we will just never bank on that. Same goes for Jake’s pension – we don’t really like the fact that we have to have the state government control our money instead of ourselves, which is why we will probably take the lump sum someday so that we can pick our own investments.

      I do think the Roth will not be around forever, but I think it would be challenging for the government to retroactively change it – I think our money will be safe. Another reason we have Roth IRAs is to hopefully be able to do a Roth IRA conversion ladder in the future with it – I’m guessing you have heard about these.

      All of the other blogs you mentioned we have heard of and read regularly! Root of Good is one of my favorites because I feel like he is so relatable (not a super high income, had three kids, still FIREd early in life).

      Thanks so much for all of the feedback! Let us know if you have any other questions!

      1. Sounds like we are on the same page on basically everything!

        I am blessed in that I work for the federal government and the TSP has the lowest expensive ratio on many of the funds (0.16%). While there are not many options, there are large-cap and small-cap common stock index funds (as well as a bond fund, but, like you, I invest only in stocks right now). Like Jake, I have a pension as well, but I also do not think that the pension will be as powerful as they promise it. The current administration has already floated several ideas on reducing it so it’s just a matter of time.

        My comments on the Roth were not that I think the government will take it away… actually, I think the current administration was leaning towards getting rid of the traditional (floated the idea of only allowing $2,400 for traditional contributions), and allowing more Roth contributions… I was thinking more of the idea that the government always finds a way to get their fair share and not necessarily by directly attacking that tax vehicle, but getting it in more… let’s say clever… ways like imposing a VAT tax which is imposed on manufacturers which is then passed on to consumers.

        Love that you do not pay for a financial advisor. And love the idea of utilizing a Roth conversion ladder. Thank you for the comments and your thoughtful insight!

  4. Always great to see how others started their journey. Many similarities. I ran into a wall several times and learned about the multiple tools over a period of time.

  5. $37k is a big chunk of change! But it’s also really cool that this was simply maxing out your tax-advantaged accounts: one 401k + two Roth IRAs = $18,000 + 2 * $5,500 = $29,000. Just imagine if you could do two 401k’s or similar!

    1. Thank you! Our plan is to max out Jake’s 403(b) this next year as well as HSAs. Then we will be fully maxing out retirement accounts!

  6. Congratulations! Way to be disciplined at the end of the year and max out that 401(k).

    Regarding emergency fund, I actually decided to put 130% of our six month living expenses in a moderate allocation (~50% stocks and 50% bonds globally diversified). I just couldn’t stomach leaving it in a savings account!

    1. Thank you! We having considered putting some of our EF into a moderate allocation as well but I also try my best to just look at is as insurance and not an investment. We generally only keep about 3-4 months of living expenses in it because we are in very stable career fields and have such a high savings rate that we can cash flow a lot of emergencies.

  7. Great post, and congratulations on achieving this super savings win! Don’t discount your pension! Not many people have access to a pension any more, so it’s nice that you do! Is your employer also contributing to your pension? Just consider that it is another way to get some additional money into your retirement fund (if you’re employer is contributing) that goes beyond the 401(k) and IRA. Once you max out your 401(k) and IRA, there aren’t a ton of tax advantaged retirement options (of course, the HSA is a good one, if your employer offers it).

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