Paying Ourselves First

Paying Yourself First is one of the keys to long-term savings, being able to retire some mythical day, and being able to make ends meet in a pinch. Having the necessary means to survive a rainy day or in some cases rainy months or even years.

Yesterday, I read advice from Suze Orman, who dispelled the notion of having six months worth of living expenses saved up for the proverbial rainy day.  She advises having eight to twelve months just in case.

“You need as much money in the bank that makes you feel secure,” Orman reiterates. “Don’t go fooling yourself, ‘It’s okay, I can charge on a credit card, I can do this.’ You should have at least eight months. Not six months, not three months, I’d like to see you have eight months to one year.”

That applies well to Yours Truly Middle Class Guy, as I work in the field of economic development, which has been in contraction mode in the Chicago area over the past seven or so years since the inception of the Great Recession.

Jobs in this field are relatively plentiful in business-friendly southern states that are not plagued by the overwhelming tax and regulatory burdens that we have here in the Land of Lincoln.  I would not feel so stressed if we lived in Florida or Texas, but we do not and most likely never will.

The economic development function in many Illinois municipalities has been absorbed into other job titles, farmed out to contractual consultants on a year-by-year basis, relegated to public/private organizations or, in some cases, eliminated altogether.

Ironically enough, my plan for eight-and-a-half years from now after hopefully qualifying for my IMRF pension is to be one of these hired gun consultants with a one- or two-year contract here and there.  Who wants to be at the same town trying to accomplish the same thing for as many years as I have?

I take Suze Orman’s advice seriously, along with advice read or heard from many other sources.

That is why, despite my current heightened state of anxiety, I have continued Paying Ourselves First, rather than just Paying Myself First, but it is the same concept.

After today (Wednesday, June 21, 2017), I will be taking the next three work days off.  We get our paycheck stubs for Friday via email the previous Wednesday, so I got mine today and see that I have thirty-seven vacation days on the books as well as over ninety sick days and four personal days.  I would have more sick days than that, but I have cashed quite a few out at 50% pay over the years.  I would have cashed more out, but the limit is six per year if you have not taken any all year.

I showed up to work feeling slightly or more than slightly ill many a time in an effort to not take any sick days all year and cash out my six days at half pay.

My family’s travels will be taking us to the City of Milwaukee tomorrow to visit the Mitchell Park Conservatory, otherwise known as “The Domes” and will take us to the Starved Rock area in western Illinois for a few days following that.

Incidentally, we are renting a car for tomorrow’s day trip to spare us the discomfort of driving for over three hours in one day in the hot and humid Midwest without the benefit of air conditioning, which gave out several years ago in our clunker minivan.

I reserved a car from the local Enterprise location, like I always do.

Thank you for your reservation
Your confirmation number is 1243XXXXXX

Pick-Up Details

Location Middle Class Home
Date & Time Thursday, June 22, 2017 @ 10:00 AM
Address Middle Class Address
Phone (847) 555-1212
Hours Thu 7:30 AM-6:00 PM

Return Details

Location Middle Class Town Enterprise location
Date & Time Friday, June 23, 2017 @ 10:00 AM
Address Middle Class Address
Phone (847) 555-1212
Hours Fri 7:30 AM-6:00 PM

Renter Details

Name Middle Class Guy
Email MCG’s
Phone (847) 555-1212

Pricing Details

Vehicle Class Standard
Buick Verano or Similar
TIME & DISTANCE 1  DAILY @ $63.99 $63.99
Taxes and Fees

AUTO RENTAL TAX (12.0%) $7.83
VLCRF $1.30

Estimated Total $74.12

Since I will be moving offices upon my return next week, I am beyond happy to have these vacation days off.  They would be better off called Mental Health Days, since that is what I need at this point.

Never in my wildest dreams as a young twenty-something-year-old pursuing my master’s degree in public administration did I imagine that I would be reporting to someone who would have been about ten years old at the time, and not the brightest bulb in the package, twenty years later.

Such is life.

So after yesterday’s post, I was thinking today that another thing that relieves my anxiety at least a little bit is Paying Ourselves First.

Despite my previously-posted details about spending $10,000 or more in a typical middle class suburban month, I have continued Paying Ourselves First this June to the tune of $1,400.  That breaks down to $600 to my Roth IRA, $500 to our daughter’s 529 account and $300 to my wife’s Roth IRA.

To wit: I sent a paper check to my wife’s IRA that transacted very early this month.  It is her account, so I never requested that she register it electronically, although it is now one of our two investment accounts, both hers through Vanguard, that we do not access electronically.

That might sound silly or quaint to you and if it does, so be it.  There have been many wealthy investors including multimillionaires who never utilized an electronic account in their life.  Of course, most of those investors started decades ago.

Regarding my Roth IRA, comprised of two funds with T. Rowe Price, I sent additional $300 purchase orders in electronically at both paydays, one near Friday, June 9th and another today for this Friday’s payday.

The transaction(s) completed 06/21/2017 6:45 p.m. (ET).

Roth IRA   (Middle Class Guy)

Account Name Account Number Available Shares Available Balances
Capital Appreciation – Roth IRA XXXXXXX 483.135 $13,870.81
Confirmation Number: XXXXX     Trade Date: 06/22/2017         Investment Amount:  $300

For our daughter, we automatically pay $400 into her Bright Start account on the first of every month.  Because I am the kind of guy who likes round numbers and also resolves to send at least $5,000 to her college account every year, I must send an additional $200 to her account at some time during the year.

I was also prompted to do so by this email from Bright Start a few weeks ago, which, as you can see, projects her account to reach over $70,000 by the time she turns eighteen, assuming 5% average annual growth compounded monthly.

You’re already contributing automatically to your Bright Start Savings Plan. Great! But see what your savings could be if you increase your contribution by just $100 per month.
 Hypothetical value of your Bright Start savings plan at age 18
Current Contribution
Additional $100 per Month
These figures are for illustrative purposes only and are based on a hypothetical 5% annual rate of return compounded monthly. They are not meant to predict or depict the return of any Oppenheimer fund or your 529 account. This example assumes the reinvestment of any distributions. It does not reflect the effect of taxes, plan fees, charges and expenses and assumes that investments are made at the beginning of the month. If such taxes, plan fees, charges and expenses were taken into account, returns would have been less.

So besides the $400 invested on the first of the month, I sent the additional small sum of $100, so I have now invested $2,500 into her account midway through the year.

For our son, I have not sent any additional money to his college accounts for about a year.  I have already somehow managed to sock away one hundred grand into his college accounts, which still have about eighty thousand in them after we shelled out about twenty-five grand during his freshman year.  We have eighty left for him instead of seventy-five because I “only” withdrew about twenty thousand from his savings this year and paid another five or so out of our own cash flow.

For those of you who pay college expenses with 529 accounts, you know that to qualify for the American Opportunity tax credit, you must spend at least four thousand dollars of non-529 money to qualify for it.  You may not collect two tax breaks for the same dollars.

Let me clearly state here that my family is not becoming wealthy by any means.  Because I saved and still save so much of our income for our children’s college accounts, my wife’s and my IRAs are at lower levels than they should be.

I have read several articles that say people our age (forty-six and forty-seven) should have about four times our annual income saved and five times as much about three years from now at the age of fifty.

As our combined income is now around $112,000, that means that we should have nearly $450,000 saved.  Let me tell you, we are nowhere near that number and have maybe one quarter of that in accounts not targeted for educational expenses.

That does not mean that I will not continue striving toward reaching worthwhile savings goals.  Also, I am working towards achieving a pension, which would be in the $6,500 monthly range if I can succeed in remaining gainfully employed in my current position or a similar one that contributes to IMRF through the end of 2025.

As I have written in my last few posts, I am definitely suffering from a higher level of anxiety than I have for quite some time.  But Paying Ourselves First still makes me feel better every other Friday when payday rolls around.

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