About two months ago I was looking at our budget and I thought to myself, “Things have got to change.” We can never seem to get ahead. When we moved to Williamsburg the economy was just starting its downward spiral. We went from making money every time we sold a house to not being able to sell our house. We went from steady raises and big bonuses to no raises and smaller bonuses. When we bought our house we bought down points and got an interest only loan. It seemed smart at the time. We didn’t plan on living in it for more than 5 years. We had our sights set on a gated community.
Now reality…
We are not irresponsible with money. We have never bought anything we couldn’t afford the payments for… but we also have always spent ALL of our money. We always planned to put more away for retirement and save for the kid’s college, but unless we find a money tree, the likelihood of us finding hundreds of extra dollars isn’t too high.
So things needed to change.
We bought a book, started a debt snowball, and we are now about a year away from paying off all of our debt. When that is done we will start seriously saving for retirement and the kid’s college funds. While I am grateful that we are moving in the right direction, the only thing that I keep thinking is that I wish we had started this sooner.
This is why….
I will use my brother Christopher as an example… he is 25 years old.
If Christopher would like to retire at 65 he as 40 years to save for retirement. If he would like to retire on, let's say 50,000 a year (which wouldn't go too far, but it is a round number) he would need 625,000 to have that amount per year when he retires. In order to save that money he needs to put way 178.75 EVERY month until he is 65. He SHOULD be contributing at least that into his 401K but it is important, even as young as he is, to open a Roth IRA as well.
Paul is closer to 40 years old. We would like to retire on 100,000 a year (hopefully the house will be paid off by then). That means we need a nest egg of $1,250,000. If we want to retire with that amount we need to put $1313.75 away EVERY month... which honestly is not going to happen. Do you see how important it is to save early? If Christopher wanted the same retirement he would need to put 357.50 away every month.... We already put 400 a month away, but we are going to up that to 700.00 a month when our debt is paid off, which will give us about 60,000 a month when we retire. Hopefully, when I start working again we will be able to put away more.
We also need to plan for college…. We have three children and I would like them to be able to go to school relatively debt free. We will promise the kids 4 years of college and 15,000 every year. If they want to spend more it will be on their dime.
60,000 per kid… 249.48 a month for Ford, and 155 each for Grace and Lily. We need to put away $560 a month for college.
And the GRAND TOTAL is… $ 860 extra dollars a month for retirement and college savings. Any money left over will be put in savings…. I guess the good news is that after our car is paid off we will have that much extra money to work with. I just wish we had thought about all this sooner!
If you want more information about how we started our debt snowball look here..
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