Learning how to save, five years later

Once a year, I like to look back on the financial decisions I’ve made and think about any changes I anticipate making in the year ahead.

Last Year

Financially speaking, not much happened during the first eleven months of 2011, besides the steady evaporation of my travel savings. I did, however, accomplish the few financial goals I set for myself in my last “Learning how to save” post: I increased my exposure to international equity—predictably right before the eurozone economies slumped, I sold off my managed retirement funds (in favor of index funds), and I rolled over my Roth 401(k) to my personal Roth IRA.

When Stephanie and I returned to the United States in August, we had $10,000 as a post-travel savings buffer, an arbitrary amount that seemed reasonable in order to restart our lives. That estimate turned out to be prescient, as there wasn’t much left of it when our first paychecks showed up in the middle of October. It goes without saying that we were both exceptionally fortunate to be offered jobs within a week and a half of our return to San Francisco.

That would be the end of this post, if it wasn’t for something I wrote way back in 2007 (and subsequently acted on), shortly after starting this “Learning how to save” series. In my post, Thinking ahead (about real estate), you’ll find this little gem:

My 31-year-old self would probably want to take my 27-year-old self out for a beer and thank me profusely if he looked at his savings account balance and found $50,000. Of course, between then and now, there’ll probably be a lot of plane tickets and other spontaneous large expenses to account for. So saving $50,000 might take a little longer.

First of all, I can’t believe I wrote that. Second, what my financially-conservative 27-year-old self didn’t anticipate back in 2007 was that my salary would increase in the intervening years, and I’d largely funnel those raises into my brokerage account (separate from my travel savings). A lot of the time it felt like a black hole, because the stock market kept plummeting. But over time it regained lost ground, and had largely recovered, and even slightly gained in value, by the end of 2011.

Suffice it to say, I owed my 27-year-old self a beer. So rather than touring rentals on the Craigslist circuit, in October Stephanie and I started touring condos on the open house circuit. We closed on our condo in the middle of December, making us the proud owners of a shiny (and very substantial) new mortgage.

This Year (and probably every year thereafter)

My 1st priority is retirement. As a stretch goal, I’d like for both of us to fully fund our Roth IRAs for 2011 before taxes are due in April. Then I’d like to do the same for 2012 before the end of the year. I see this as paying ourselves back for the $10,000 we each took out of our IRAs to contribute to our down payment and closing costs. The contribution limit on an IRA feels like a token contribution to retirement, but in the absence of a 401(k), I think it’s important that we get in the habit of making it our first priority.

My 2nd priority is our emergency fund, which is currently non-existent. I’d like us to try to squirrel away $15,000 this year and $15,000 in 2013, which should give us a solid 6-month buffer for any unexpected home maintenance costs or employment gaps. Given that Stephanie and I share our mortgage, our finances are more intertwined than they were in the past. To give us a place to put aside money for mortgage payments, property tax, and bumps in the road, we’ll be opening our first joint checking account!

My 3rd priority is paying down our mortgage. It bugs me that we have to pay nearly $400/month in private mortgage insurance (PMI) because our down payment was less than 20%. This was a conscious trade-off—we decided it was more important to get a head-start on a mortgage now, rather than rent for another 3-4 years while we built up a 20% down payment. So if we have anything left over at the end of the year (after all of the above), I’d like to use it to pay down our mortgage principal. Assuming our income remains a straight line, and we don’t factor in any increase in home value, the soonest I’d see our loan-to-value (LTV) ratio dipping below 80% is 2015. My long-term dream is to pay off our 30 year mortgage in 15 years. In keeping with tradition, I think my 47-year-old self would probably want to buy my 32-year-old self a very expensive bottle of wine if that turned out to be the case.

And if there’s anything left beyond that, it’s gravy: savings for our next trip around the world, a pied-à-terre en France, college fund for the rugrats…?

Update: Learning how to save, six years later

2 Comments

Danny Dawson

Congrats on the first joint checking and joint mortgage! You are now more married than you would be if you had gotten married.

Speaking of, how are you taking title?

We are joint tenants in this venture (and in title). At least now I know how to refer to Stephanie among strangers:

“She’s my tenant, and I hers.”

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