How do you decide when to save and when to spend?

amother

OP ↓

Mon, Nov 18 2024, 9:37 pm

We have a monthly income of approximately $20k after taxes/health insurance deductions. Our expenses are about $16k a month, leaving us with about $4k extra a month, or about $50k a year. We are both 30 and before this year lived relatively frugally because we were saving for a house and every extra penny we made went to that goal. We bought and redid our house last year and now I'm struggling to allocate spending vs. saving our extra cash without a specific savings goal in mind.

We save about $1,500 a month combined in our 401k's (which is taken out before our $20k monthly income) and we invest about $100 a month per kid into a mutual fund, which I hope to use to help them to buy a house one day. I could benefit from, for example, getting a second day of cleaning help, but it pains me to spend the extra $5k a year on it. So basically, how do you decide what of your extra income you save vs. spend if you don't have a savings target in mind?

amother

Red ↓

Mon, Nov 18 2024, 10:24 pm

We are similar age

We max out our IRAs, we have a deferred comp plan, we are investing for weddings (goal is to put away $200-300,000 and let it grow), for bar mitzvahs we are saving and investing 30k in CDs type of accounts, for major renovations/home extension we are saving.

After that we spend Smile

we invest/save about 5- 6k a month when we can.

For extras like a new sheitel I save up very slowly. We drive cars that are now ten years old (we bought them years ago). We live very much beneath our means.

amother

Amber ↓

Mon, Nov 18 2024, 10:30 pm

Similar situation and similar question. I would say that for us, we still have savings goals and our lifestyle hasn't changed much. Ex - paying off the mortage quickly, kids simchas (bar mitzvahs, weddings), large known expenses like seminary, house maintainence (the boiler always breaks at the most inconvenient time), etc. I'm also conscious of the idiom "little kids little expenses big kids big expenses" and want to save as much as possible now since our income won't necessarily increase so much in the future but our expenses surely will. For now, we are still living well below our means and save a significant proportion of our income each month. I have fargined myself a cleaning lady now whereas I've never had one in the past, and made other minor tweaks like that. My husband and I have similar approaches to spending and that didn't change simply because we recently bought a house. We don't have a set number we plan to save each month, but we are happy with how it is working out, and we'll reevaluate in the future if need be.

amother

↑ OP

Mon, Nov 18 2024, 10:35 pm

amother Amber wrote:

Right, our kids are also little. I guess I don't anticipate our expenses going that much higher until high school since our daycare expense is the same as the tuition in K-8 but I do expect our income to keep going up about 5% a year. We keep $30k in cash as an emergency fund and have $70k in an investment account from our wedding. I just can't seem to figure out the balance between spending on some extras vs. saving as much as we can.

amother

↑ Red ↓

Mon, Nov 18 2024, 10:47 pm

First figure out how much you need to save. Max out any retirement accounts like IRA or 401k with tax benefits. Figure out how much you need to save for weddings, other simchos.

Expenses that rise as kids get older: sleep away camp. Braces. Kids clothing get more expensive. They eat a lot more food…

More kids, if you plan to try to have more…

Travel and vacation costs more if you have more kids. Tuition increases yearly usually. Sometimes tutors or therapy if needed.

Once you figure out how much you need to be saving, then you can decide how much you can spend.

Work with a financial advisor if you don’t already have one.

amother

Currant

Tue, Nov 19 2024, 12:45 am

Following. We make the same and our expenses are around 8k a month. Two little kids. No house, we have been waiting for rates to go down. We hope to buy this year and I am terrified. A mortgage on a small tristate area home will be around 3000 more than we are paying right now. Tuition payments will start next year as well. I am not a frugal person but we live below our means. Currently browsing frum kids store clothing sales and wondering who is paying full price for the clothing, like 115 for a toddler shabbos outfit or even 65 for a sweatshirt!

amother

Quince ↓

Tue, Nov 19 2024, 1:26 am

I'd suggest speaking to a financial advisor. We were in your shoes and wound up paying off our mortgage, buying a second home in cash and now have around 500k invested, along with properties worth 2M and 300k, debt free. Our income covers all expenses from full tuition, car payments (we finance), property taxes, etc. with enough leftover to go away for pesach or travel every summer. We're big into travel. Each of my kids has a savings account that we've added to over the years so by end of high school, they have 25k a piece to start life. If I need to make a simcha, it comes from income that year. We'll just put less into savings/ investments. We don't believe in making 100k weddings or anything like that. Our kids high school tuitions are more than their college so we're set to keep paying their way through based on our income. But yes, after a certain point, I stopped looking for the cheapest option at the store and now just get what I need. We splurge on each other (like I got DH a wonderful jacket for chanukah that was 795 and gloves for 299). We just turned 40, for reference.

amother

Cantaloupe

Tue, Nov 19 2024, 1:56 am

amother Quince wrote:

Exactly this. Make financial goals and add dates. We’re a little younger with a smaller income and we have set goals. Save x by x date intended for wedding and set up house and college for each kid. Pay off mortgage early by x date. Have x invested by x date. Kitchen renovation by x date. After planning toward goals, then you spend what is left.

imaima

Tue, Nov 19 2024, 9:43 am

amother OP wrote:

Try to add the extra day of cleaning and reevaluate. I have done it and dropped it when it got easier. You don’t need to measure everything in years.
You decide by considering the urgency, the cost of your immaterial resources (time, koach, peace), longevity etc

amother

Burgundy ↓

Tue, Nov 19 2024, 1:46 pm

We’re younger than you with way less income and one baby
We save like this: Retirement, investments for us, investment for kid, and emergency fund.
Every month we divide our savings into each of those accounts (besides emergency fund, which is in a high yield savings)
Kids account is for bar mitzvah, wedding, and whatever’s leftover to give them once they’re married. We don’t have a large income rights now so I’m not going on the assumption that I’ll have the extra $$ at once come time for Simchas
We have some cd’s also, and another account that we put cash back and points from cc for vacations.

Decide what you want to save for and allocate your money accordingly. It’s good to have some investments too. Once you decide how much you want to save where, enjoy the rest!

amother

↑ Amber ↓

Thu, Nov 21 2024, 10:52 pm

imaima wrote:

I echo this post. Good advice from all the posters, but I think some are missing the question. For example, regarding the ones who said "figure out how much you want to save for XYZ and then enjoy the rest" - the problem for the OP is that "figuring out how much she wants to save" is the question. One poster said she's giving all of her kids 25K to start life with - but where did the number 25K come from? It could have just as easily been 10K or 50K - and then the amount of savings to put aside per month would vary accordingly. I think OP is having trouble deciding just how much to save each month - and when it's okay to fargin oneself vs. when it's not. I had mentioned earlier that we don't have a set amount to save each month, and that works fine for us. When you are making more than enough income, a strict budget can feel unnecessarily stifling. Advice like this post - fargin it for now because it sounds like you'd find it helpful, and reevaluate in a few years when your kids are older, may be the more practical advice for OP in her situation.

amother

↑ Burgundy

Fri, Nov 22 2024, 3:09 am

amother Amber wrote:

I mean that depends. She said her expenses add up to 16k- is that on a strict budget or is she giving herself room to breathe? Does this include the 3k they are saving into their Roth?

If yes, I think adding to kids account is the responsible thing to do. She can decide with her husband how much they feel comfortable setting aside, be it 100 per kid or 500.
OP, do you like going on vacations? You can set aside each month for that too. Get yourself an extra day or two of cleaning help. Treat yourself once or twice or ten times a month.

It’s really very personal. Everyone spends money on what’s important to them. Until now your priority was saving for a house. Now you need to figure out what your new priorities are.
You can not save and whenever the checking gets above a certain amount, transfer into savings.

amother

↑ Quince

Fri, Nov 22 2024, 7:07 am

This is why speaking to a financial advisor is important. They help you budget and decide where to spend and save. Since I answered the question already, I gave some personal context for comparison a decade on from where OP is. 25k is a figure we came up with because my husband and I started like with a little under 10k each and after starting on our savings journey for our kids, we realized 10k these days isn't enough so we began aiming higher. 25k is where we landed. We also buy our children a new car when 18, pay for college in full and cover their housing/ food and living costs during college so they can focus on their future. When everything is covered, 25k in the bank is just a little extra for them to feel secure. Iyh, when one gets married, they already have an apartment that's his or her (since we buy for college and they can stay safely in our place) and have a good leg up on starting life. These are priorities for us so we save and put aside for them. We're currently looking at apartments for our daughter so she has a home for college and grad school. We'll probably spend 350-450k for a 2 bedroom with a porch, parking, etc. We bought her a car and she has everything she needs. So part of planning when to spend and save is setting goals like this and either saving enough to do it or by not spending that year more and using income for things like the down-payment. For me, I have 90k coming next year that isn't needed (after tax). It's our deposit on the apartment. We just aren't going to spend it somewhere else like on a summer in Europe or safari in Africa.

newmommy22

Fri, Nov 22 2024, 8:54 am

Max out your IRAs/401ks. You should also have an emergency fund equal to six months worth of expenses - in your case about 96k. Then I would personally increase the cleaning help. Also, some other posters mentioned paying down their mortgage early, if your mortgage is a low rate, it's probably not good advice financially. Better to invest the money than pay down a 3% mortgage.

amother

↑ Amber

Fri, Nov 22 2024, 8:58 am

amother NeonGreen wrote:

Is it a problem that our savings are not earmarked for specific things? We have around 30k in a savings account. 70k in investment and 100k in cd investment

No, everyone does what's best for them. I think different accounts helps people not to feel drawn to spend more than they budgeted on a certain expense because "oh we have the money anyway." By having separate accounts, you more readily see "no, I only have 20K for this specific expense."