Hi everyone, first post and all that jazz. I wanted to get some advice as to where my wife and I should start putting our money.

Our situation:
We're both working in great jobs, make around 95k gross, have a new car we owe 9k on, around 15k in consolidated student loans, and no credit card debt. We want to buy a house (probably around $180k) in a couple years, and a year or two after that we'll need a new car.

What we're doing:
My 401k matches 100% up to 4% -- so I've got 4% in to get their 4. My wife's 401k is not so hot (50% the last 4% of 10%), so we haven't done that. We have an MMA with around 5k in it that we treat as our emergency backup money.

What I'm looking at:
I'm trying to decide which direction to head into. Should we start a Roth IRA? Should we start stockpiling cash for a house downpayment? We probably have around $500 a month we can put towards savings with around $5k once a year that I've bookmarked for savings from a bonus I get. I'm fully aware of compounding interest and starting early, but also am trying to find that balance with the big purchases we're planning.

Any ideas/comments?

man, sounds like you guys are doing well already.

what are the interest rates on your auto and student loans?

how much are you expecting to put down on the house? does a couple of years mean 2 years or 5 years?

what big purchases? when?

$95k gross seems like you would have more than $500 extra a month considering you do not have much debt.

there's a lot of places you could put your money, but you need to have some short, mid, and long term goals first. You have some goals listed like a house and some big purchases, although nothing specific listed. what are your retirement goals? how much do you already have invested towards retirement?

Seriously with 95k you should be able to save/pay down a lot more than $500 a month. I on target to make about $65k this year while supporting a wife, daughter, mortgage and I'm still saving $400 a month

I think you're first task would be to look at your budget and make some cuts. In order to make your goals (assuming 20% down payment and paying cash for the car) you're going to have to free up additional money. Even if you did nothing but saved for the house at $11,000 a year it will take you three years to save a 20% down payment

Thanks for the replies.

For GooGoo:
Interest rate on the auto is 4.99%, student loans are 4.75%. We pay just under 400/month for the car, and around 250/month for the student loans.

We're expecting to put down about 18k on the house.

The big purchases are a house in 24-30 months and a car in around 36-42.

Here's how our budget breaks down:
4500 net each month* (after pre-tax 401k & medical contribs)
1200 to rent
650 to car & student loans
400 to car & renters insurance
450 to tithe (we're Christians and believe in tithing)
200 to medical costs (we're both on some pretty pricey maintenance drugs and this is after copays)
250 to electricity, cable, water/waste
850 to food/gas/entertainment/clothes/CPA & CEBS exam fees/wedding gifts
voila: 500 left

*I might add that the way my compensation is set up, about 1/4 of it is in the form of an annual bonus. After taxes, that's around 6500-7000. We are planning to use 1.5-2k of it for vacations/travel, and the other 5k for savings.

Short term goals (within 5 years) are the house and car
Mid term goals (5-20) are to have 1.5 children (okay, we'll probably round up and have 2), go back to grad school
Long term goals (20+) are to put those two kids through college (we'd like for them to go to our alma mater which is a private school running around 30k/year at this present time), move to a smaller town, and move slowly from a working schedule to a retired schedule.

Pay future: Assuming we don't quit to join the circus, my wife will double her salary every 5 years with no cap (she currently makes 50k), and I will top out at around 120k (in present amounts) in about 10-15 years (I currently make 45k). She is up for a raise in a couple months and is expecting around a 10% raise.

Retirement savings: I have $2200 in my 401k (we both just graduated last may). So far that's it.

For Baker:
I'd heard that around 10% is what's needed for a solid down payment, so had been aiming for around that. Keep in mind, since it will be our first house, we will have several extraneous expenses fairly quickly.

you can get away with a 10% down payment but its going to be a lot harder. Most lenders have been drastically tightening their lending practices due to the current problems. They generally want a larger down payment to help secure their money if the market tanks and you stop paying.

While it was possible to get 10% down loans without PMI I doubt this will continue to be the case. So yes you can put 10% down but you'll add the cost of mortgage insurance (around 0.5% of the loan.) So if you buy a $180,000 house and put down $18,000 you owe $162,000 plus closing costs, we'll say $2500. You're going to add roughly $75 a month onto your payment.

Also not to pry but is there any reason your car and renters insurance costs are so high? $400 a month seems ridiculous to me and i live in Chicago.

You need to reduce your debt and build up a bigger emergency fund. $400 a month for a car, given your other expenses, is too much. How big is the car loan? For the next year, perhaps you could put $200 extra on the car loan and $300 in the emergency fund.

You only have $5,000 in your emergency fund. Given your expenses, you're taking a big risk. Your savings would not even cover 2 months of rent, loans, insurance and food. I recognize that you've got low interest rates on these things, but you've got a big chunk of debt in front of you. I, too, live in an expensive city, so $1200 a month for rent sounds okay. But, to dig out, you've got to get rid of your debt and build up a bigger emergency fund, so that you aren't at risk of taking on more debt. It sounds like you'll have great salary growth between you, so I don't think this is a terrible obstacle.

Does your churcb accept in-kind tithing of any kind?

I just wanted to come back and say that you've made commendable strides. I don't want you to think I'm attacking what you've done so far. You've only been working for a short time and I'm sure you're head and shoulders above many of your peers.

As others have noted, you need to do some shopping around for renter's and auto insurance. That seems very high. without knowing the pay break down, it is hard to determine what impact contributing 10% into your husband's 401k would have. although not as good as your 401k, it still has some matching funds. I'd like to know how much 10% would reduce your net monthly take home pay. without taking this into account, i would probably look at the following as an option:

If both are in a secure job position, $5k is alright for now, but I'd be increasing once the bonus time comes around. I'm figuring the end of the year here.

With this said, you would need $600/mo for 30 months to get your $18k down payment. with only $500/mo, you aren't going to be able to reach that goal. If you cannot reduce your auto and renter's insurance, I'd tithe $200/mo giving you $750/mo to save. Option 1: This will give you the $600/mo into savings towards your down payment. If you are in a favorable state, I'd put the $600/mo into t-bills for the tax advantage which should give you an edge over your auto interest rate and high yield savings account rate. Put the $150/mo left over into ESP/529 for grad school or into a baby fund. Option 2: If not in a t-bill tax advantage state, i'd put $400/mo towards the car payment to pay the car off in a year. Use the $150/mo left over into ESP or 529 for grad school. Put $200/mo towards down payment fund. once the car is paid off, you are going to need about $820/mo to reach your 30month $18k down payment, which will give you $180/mo towards new car, while maintaining $150/mo into ESP/529 or baby fund. This is focusing on you wanting a house as a primary goal for now.

Either option, I would use the $5k to build your emergency fund to $10k given the expenses you have. I'd probably recommend at least $15k as an emergency fund in your case, since you have high medical expenses.

i say this in lieu of funding more towards retirement, b/c you have some major expenses you want to pay for. this will put you behind probably 2-3 years in retirement savings. once you fund your down payment, i'd then max out your retirement savings. 2-3 years behind isn't a bad thing. however, getting funds set up for the house, your emergency fund, another car, and a baby is something you should focus on now.

Thank you all for your input -- I'm definitely on the front-end of learning and am trying to soak it all in! Your advice is great.

The auto & renters insurance is high because my wife was in several car accidents, we live in a downtown zip code (which apparently affects the rate for vandalism purposes I was told), and I'm a male under 25. Because of the previous accidents, we've kept our deductible fairly low so that accidents don't kill us. We've already had to use the insurance the past couple months because we had an uninsured motorist hit us.

Anyways, it sounds like our next steps are to continue to build on the emergency fund and also focus on the car payment. I'll look more closely into my wife's 401k and see if we can get started on that too. Thanks again for your input.

Keeping deductibles low before you get into accidents is ok. Once you get some dingers on your record, the low deductible is a killer. Just a few months of the premium differences would easily pay for the higher deductible. Call and find out what the difference would be.

A better investment might be to have your wife avoid accidents altogether. Perhaps she should consider a defensive driving class, or even just a refresher of basic driving lessons? That'd be cheaper than the $200-250 that you're overpaying in insurance each month.

I couldn't find an online reference in the two minutes I spent surfing, but I have heard from various sources over the years Houston has very high insurance rates relative to the rest of the country. As far as auto insurance, it probably has to do with the fact that there are so many cars on our poorly designed & maintained roads, that most of them are enormous unsafe SUVs and trucks, and that Houston is such a large city that we (probably) drive more than the national average. Those factors sound to me like they would add up to lots of claims, thus higher premiums.

I'd be willing to bet that we also have a very high percentage (relative to other major cities) of UNinsured motorists on our roads which, if I were in the insurance business, would make me want to jack up rates even further.

Did you just base this on last month's balance? Those last few items don't sound like recurring expenses. I bet if you set up an automatic withdrawal you'd find that your spending adjusts downward and you'll still end up with about the same amount left over at the end of the month. I did that a year ago and my haphazard saving hasn't changed (roughly $750 a month for the last five years, averaging in bonuses) but because I get $600 taken off every paycheck before I see it, my overall saving for this year has jumped by over $15,000.

If you have a definite goal like paying off your debt and saving $18,000 for a down payment in three years, then you can work backwards and determine that you need to save around $1200 per month to get there (excluding interest payments on the loan). If you factor in a 20% down payment, you'd need to save around $1700 per month.

If that seems impossible to you, then you need to re-evaluate whether your goals are reasonable.

Ipret, if you are prone to accidents and the city you live in is prone for vandalism and uninsured motorists, then you want to get a car that is reliable but one you don't need comprehensive insurance. second, your thinking is backwards. you should have high deductibles rather than low ones. your insurance is high because you have filed many claims. if you can live with dings and dents, then it is better to have high deductibles. second, were all of the accidents your fault? if not, then you should have filed through the other person's insurance company. of course this doesn't apply for uninsured motorists. if you file a claim through the other person's insurance company that was at fault, you do not have to pay any deductible. if you go through your insurance company, then you have to pay the deductible.

although i agree that you both should look at how you drive, defensive driving courses aren't necessarily the best idea; however, you can reduce your insurance rate in texas by taking one. you can do it online or rent the video. if you get a moving violation, you can also take a dd class to prevent it from being registered on your driving record, too; however, there are some caveats.