With a new year upon us, Danielle has a new job and a new salary. In this episode we discuss our process for updating our budget to reflect our new income.
- Increase of about $750 a month
- New job has a 2% 401K match
- Old job had a 6% 401K match
- Open a Roth IRA and place $5,500 a year into it (about 6% of income)
- Put 7% of income into the 401K (about $5,600 a year)
- Use the 2% match to get up to 15% of total income into retirement
- Our monthly income from Danielle goes from $4,000 a month to $3,850 a month
- Contributing more to retirment than before and more coming from our pocket account for the decrease
- Overal budget unchanged, just have $150 less to put into the house each month
To do the Roth vs. putting extra on the house calcuations we used the following two websites:
We already put an extra $1,500 a month onto our mortgage. If we were to take the $450 a month and put it on the house instead of in a Roth we would be able to increase our house payment to $1,950. This is extra on top of our mortgage. Doing this would have the following outcomes:
- Drop our payoff date from ~11 years to ~8-9 years
- Save roughly $10,000 in interest vs the current extra that we are paying on the house
- Lose out on roughly $30,000 worth of Roth IRA returns
For this reason, we will put the extra $450 a month in the Roth and not the house. A general rule of thumb is that the stock market returns 7% a year. Our house interest is 3.875%. That means that pulling money out of the stock market (Roth IRA), we lose out on 4.125% of growth, every year, for 8-9 years.
If you have an input or need help understanding our decision process and our math please drop us a line. We would love to have your input, questions, and feedback!