We often read that you have to save at least 50% of your income to be well positioned to achieve FI. In our journey thus far, we actually have not calculated our savings rates. Additionally, when I read about others, I don’t get a clear sense of whether it’s 50+% after tax, pre-tax, or both. I assume it’s some mixture of both, but we’re going to figure ours out today.
On a pre-tax basis, both of us are currently maxing out our 401k/403b. Gotta minimize those taxes! Here’s what we learned so far about taxes as a married couple. This means we are both putting in $18k this year, for a total of $36k. I also have an HSA account and you bet I maxed that out as well for another $6,750 socked away pre-tax and invested in a stock market index fund. I changed jobs twice so have rolled the old 401k to a rollover IRA. However, we have put everything pre-tax into equities– low cost index funds. Given the wife’s plan to continue teaching, we’re trying not to touch this until the penalty free withdrawal age. Here’s a more detailed post about our FI plans. This will also give us several decades to ride out the dips and we’ll slowly introduce bonds to balance the risk. Therefore, we might not be able to have an extremely low tax rate to leverage a Roth conversion ladder.
On an after-tax basis, it varies month-to-month based on one off “events”. These are things like weddings, birthdays, pre-natal check ups, baby showers, etc. Our goal is to keep expenses at or below $4,500. Slowly but surely we’re dialing things in and surprisingly, haven’t felt like we are torturing ourselves or living a super frugal lifestyle. We’ve been trying to follow a minimalist lifestyle and I think that helps.
Mrs. Quest has been doing a summer time savings through her school district which is ~60% of her post-tax pay. Read more about that here. That’s invested in some account that generates about 3% and we usually take that money during the summer and invest it back in our Vanguard brokerage. This year, we used it to rebalance our portfolio instead of selling off any assets. However, we’re likely not going to stick with this next school year given the opportunity cost to get a higher return elsewhere.
Aside from that, we have an automatic transfer of $3k to Vanguard a month that is invested in 80% equities (90% VTSAX, 10% VGSLX) and 20% bonds (VBTLX). So far it has been doing well and generated ~14% return in the last 12 months. If we have an extra grand or so after monthly expenses, we’ll transfer that as well. We have a bit more in cash savings but will figure out how much liquid “cushion” we need when the baby comes. This puts us at roughly at a little over a 50% savings rate, post-tax. Not too bad I think.
This doesn’t account for my year end bonuses, which frankly, I don’t even factor in given its high variability. We usually use that rebalance our portfolio as well or in some rare cases, fulfill a long time want. Last year I bought a Concept2 Model D Indoor Rowing Machine (Black) with PM5and Rogue Fitness barbell set and rack. Mrs. Quest doesn’t like running so the rower is a worthwhile investment for us. It doesn’t come cheap and if you are lucky, might be able to find a decent used one. It has definitely come in handy for Mrs. Quest as well!
We’re still learning how to best optimize our asset allocation given our FI plans. I find myself tinkering here and there sometimes and I realize, sometimes I might just need to set it and forget it. What is your FI savings and investing strategy?
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