It’s time once again to share our savings goals. I try to do this annually. Last year I randomly updated in November, so I figured I’d stick to that randomness. If anything, this can be seen as a end-of-year tax planning guide and a way for you to explore new things for you and your family to save for.
Maintain Emergency Fund – An emergency fund is a simple cash savings fund that’s readily accessible in the event that your job goes away or you face some emergency where cash is needed (like a big car repair or medical emergency). Last year we did a good job of keeping our emergency fund at six months worth of expenses. With two mortgage payments to make now (one is a rental), and because we just feel like being more conservative, we have upped our emergency fund to about ten months worth of expenses. We keep these funds in an Capital One 360 savings account. Maintaining the fund hasn’t been difficult this year, because thankfully we’ve seen an increase in income from the business and our expenses have remained close to the same as last year.
Maximize Solo 401Ks – The Solo 401K is just like a regular 401K, except it can only be used by single owner small businesses. We are on track to be able to make the maximum contributions to the Solo 401K accounts for 2012. We have our Solo 401Ks through Vanguard. I love these accounts because as a self-employed business owner I can defer up to $50,000 in income a year. I brought on Mrs. PT as an employee recently and so he will be able to make contributions as well. Gone are the days when I could just pay all of my taxes on April 15th. I’m now having to make quarterly tax payments. My accountant has set it up where I get paid quarterly as well. In one paycheck I get paid, withhold 401K contributions, and make income tax payments. It’s a nice system that should have me properly lined up by the end of the year.
Maximize Health Savings Account (HSA) – Health savings accounts are tax-advantaged savings accounts available only to people with a high-deductible insurance plan, where you can stash money to be used for medical and health expenses. Because we have a high-deductible insurance plan we have a health savings account (at a local credit union), which allows us to contribute money that won’t be taxed as long as it’s used for qualifying medical expenses. As a family in 2012, we get to make a maximum HSA contribution of $6,250 to this account.
Property Taxes Savings Fund – Do you pay your property taxes yourself? Did you know you can (you typically need to have 20% of your house paid off)? Like every year, we are saving up our own property tax payment vs paying it along with our mortgage. Since we moved this year but kept the old property as a rental, and because we moved counties, we will have a total of five payments to make (our new county has us paying city and county separate).
Next Baby Savings Fund – We plan on having another little one within the next year, so we’re saving money to afford to have the baby without insurance coverage. We have an individual high-deductible health insurance plan. In Texas, individual insurance plans don’t cover maternity costs. So we’ve got to pay for it out of pocket. Our last little one cost around $25K under insurance, so we’re hoping to negotiate that down using cash, but we’re still a long ways away from that time. Plus, we’ll have half of this amount saved through our HSA by then if we make the maximums each year. We’ll see.
Income Tax Savings Fund – Even though I’ve been making quarterly estimated tax payments this year, I’m still planning on owing a considerable chunk to the IRS come tax filing day. So, we’re getting a head start on this fund now, vs waiting for 2013 income to pay for it.
$25/ Month to 529 College Savings Plans – Our philosophy on college savings hasn’t changed. We continue to place a very small amount each month into both girls’ 529 college savings plans so that our ability to meet our own financial goals isn’t compromised. $25 is an amount we don’t miss, and I know we are at least doing something that will give them a little help in the future.
[Stretch Goal] Attempt a Non-Deductible Traditional IRA Contribution and Conversion to Roth IRA – Something that is on my radar for the rest of the year is to make a Roth IRA contribution. We’re limited because of our income, but we can do a backdoor Roth IRA contribution. The only question is how much tax we’ll owe on the conversion and if it’s worth it. I plan on figuring this out by the end of the year. If we decide to do it, it will be $5,000 for each of us.
So what do you think of our current savings goals? Do you see any issues? Should I be saving for anything else?
Want to see my goals from the previous year? Click to the next page.