Maya Rodgers*, 31, a regional production planning manager in the food industry
Annual Income: $78,900, plus a 10% bonus
What Maya says about her budget
“I’m a retirement super saver — a skill my parents have encouraged me to cultivate over the years. Honestly, I think they’re afraid I’ll be single forever, so I will have to generate enough cash to take care of myself down the line.
Thankfully, being based in Chicago has been great for me financially, since the cost of living is lower than in other major cities. As a result, I’ve been able to buy my condo, as well as focus my saving efforts on retirement.
In addition to putting 15% of my paycheck into my 401(k) — and taking advantage of my company’s 5% match — I also put $5,000 into a traditional IRA each year, plus another $5,000 into a Roth IRA. In total, I have about $65,000 saved in the three accounts.
One area where I struggle, however, is my emergency savings. I’d like to have at least $10,000 in that fund, which would allow me to avoid charging unexpected expenses on my credit card. But I’m only halfway there, and not currently contributing to it.
My goal is to figure out where I can free up some cash to beef up this account. I could probably cut back on impulse spending — I can never get out of Target for less than $50 — and perhaps call up my cable company to lower my bill.
There is one detail that could threaten my progress. I’m looking for a new job, and if I find one, my food bills could increase. At my current gig there’s a cafeteria that offers lots of great breakfast and lunch options — for free. Not that it’s a reason to stay at this job, but it’s definitely a perk that saves me a couple hundred bucks a month.”
What Matt Shapiro, a CFP® with LearnVest Planning Services, thinks:
“Overall, Maya’s doing really well. Her housing costs come to less than a third of her monthly take-home pay, which is a healthy percentage.
As for retirement, I commend Maya’s commitment to saving, but there is an issue she needs to address quickly. The total contribution you’re allowed to make to traditional and Roth IRAs each year is $5,500 — yet she’s stashing away $10,000!
Eventually, the IRS will get in touch with her, and she’ll have to pay taxes and penalties on the excess contributions. I’d recommend that she talk to an accountant immediately to remedy this situation.
Once that’s squared away, she can funnel the leftover $4,500 — or $375 a month — to her emergency fund. Right now her $10,000 goal is reasonable, but ideally she’d keep saving until she hits $20,000, which is six months’ worth of take-home pay.
After she meets that goal, she can consider putting the $4,500 into a brokerage account. That way, if she wants to earmark it for retirement, she can. But if another big financial goal pops up in the meantime — say, she gets married, or needs a new car — there’s no withdrawal penalty.”
*Name has been changed.
This post was excerpted from “4 People, 1 City: How I Spend, Save and Splurge in Chicago,” originally published on LearnVest.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc., that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. Unless specifically identified as such, the individuals interviewed or quoted in this piece are neither clients, employees nor affiliates of LearnVest Planning Services, and the views expressed are their own. LearnVest Planning Services and any third parties listed, linked to or otherwise appearing in this message are separate and unaffiliated and are not responsible for each other’s products, services or policies.