Our 2007 Financial Goals, By Quarter

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Where are my annual goals? Right now our lives are in a state of limbo, with several pieces that need to fall into place. First and foremost, we are both working towards getting jobs in a new city. After that, we’ll have a better idea of what our income will be (probably significantly higher). It is quite probable that one of us will take longer to find a position than the other. We have a lot of temporary living options with family, or we could rent again, or we could buy our first house.

Given all those variables, here’s the best I could come up with:

1st Quarter
– Find a job!
Start Tracking Expenses
– File income taxes
– Set up estimated taxes for rest of year
– Put at least $500/month away in 401k

2nd Quarter
– Reach $50,000 in cash for a house down payment (currently at ~$37k)
– Sell most of our nonessential property, aka crap

3rd Quarter
– Move; Find a real estate agent
– Maybe buy a house if the stars align correctly

4th Quarter
– Most likely buy a “reasonable” house during this period
– Long shot goal: Buy a rental property in the Portland area

We are putting off the 2007 Roth IRA contributions until we know better what our income situation will be. It’s amazing that 2006 felt like it passed right by without much action, but 2007 looks like it will be much more hectic.

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  1. what happened to the plan of having $100k for a house downpayment? or am am I hallucinating again?

  2. I may have missed this but are you moving to Portland (I thought you were leaving there)? If not why are you considering buying a rental property in Portland? IMO – that would be a hassle that may not be worth the benefits.

    I would suggest at least starting in the place you will reside – you can always branch out if you are successful. My 2 cents.

  3. I have a quick question about the house down payment.
    my spouse and I are not yet married but we do live together. What do you think of opening a ROTH in her name and maxing it out for three years and using the entire balance towards the down payment. We are planing to buy the house in 3-4 years. I have a seperate account for the down payment already, just curious if you thought this was a good move. Tax wise it would benefit us, right?

  4. tim – 100k was the goal to have by the time we get a house, which I think we can still reach by the end of 2007.

    2mil – I agree. Properties are just so cheap here, and we have some prop manager contacts.

    Radhames – Perhaps, but you’d be giving up the future tax benefit of the Roth as well. I would try to do without withdrawing from the Roth, but you gotta do what you gotta do.

  5. thanks for the info Johnathan, but it sounds like you are still straying from your financial plan (i.e. “was the goal”, rather than “is the goal”). Don’t want to define what “is” means, but what has changed in your financial planning (new purchases, just an itch to buy a house, got all that cash burning a hole in your pocket) that you are willing to accept not achieving the $100k goal, despite being able to “think” you can still reach the marker?

    Radhames: I also agree that touching what is your retirement savings isn’t a good idea unless you absolutely must. The benefit of the Roth is more long term, so taking out within 3-4 yrs sort of defeats the purpose. Aside from this, since 3-4 yrs doesn’t meet the 5-yr test, you may want to rethink this plan. also, don’t forget that even if you take a distribution under the qualified first-time homeowner rule, you may have to pay tax on the earning portion of the distribution. You also are going to be married, which means that you will more than likely file married jointly. the extra earnings combined with your joint pay could put you in a higher tax bracket as well. Also, you aren’t married yet, but depending on when you get married, and what your married filing jointly AGI will be, you may not be able to contribute to Roth during the 3-4 yr period anyways.

  6. I am going through escrow on a condo in the Bay Area. My first home (on my own) and it took me almost 7 years to save the downpayment. But then, we are talking about the Bay Area where housing is still hot (and I don’t care what the media are saying about cooling down). I still had to pay over asking price.

    It’s good to have goals. Good luck with your downpayment.


  7. Radhames,
    Just remember two things:
    1. You need to have held the Roth IRA for 5 calendar years before you can take out any distributions (so if you open one now for 2006, you can withdraw up to $10K from the Roth IRA on 1/1/2011)
    2. If your spouse is married when she wants to make that withdrawal, her spouse (you) must also not have owned a principal residence during the two-year period ending on the date of acquisition of the new home.

    Source: http://www.fairmark.com/rothira/first.htm

  8. Radhames – IMO your nest egg (or in this case, your gf’s nest egg) is much more important than buying a house. Putting money towards a house instead of retitement means that instead of that money doubling every 7 years until you retire, it will be handed to the bank and lose value due to inflation.

    There are real risks involved with putting all your eggs into the housing basket as the baby boomers are retiring and may cause a devaluation of housing as they need money and sell their houses, or die and sell their houses. They were a big source of demand for housing, the following generations are smaller so demand quite possibly will decrease.

    The tax savings of putting money in a Roth for 3 years are not likely be all that large since on that timeframe only safe investments make sense and the choices of safe investments inside the IRA may be limited (i.e. you can’t move it to HSBC for 6%) although perhaps you could get some decent 1, 2, and 3 year CDs in there. You would save taxes on interest earned but you’ll alos have to do paperwork when you take the money out of the IRA.

    Additionally saving money in your gf’s retirement account means if you split up you’ll have no legal right to any of that money – it was retirement money saved in her name…

  9. Is, was, whatever 🙂 If you look back in the blog archives, the 100k goal was set in early 2005 when I still had a steady corporate job, and the idea was to have 100k in non-retirement by the time I want to buy a house. That remains my mid-term goal.

    Since early 2005, a lot has happened – I quit my job, our salary shrunk by more than 50%, I went back to school, our salary recovered a bit due to part-time jobs, and my wife has taken some different leaps in her career. In addition, I converted a Traditional IRA to a Roth and lost a lot of money to taxes now, which I think is still a good move for the long run.

    I made the (different) 50k cash goal in November of 2006 as part of my Make a goal experiment, which is due Mid-May. Its more realistic for my current situation. By the end of 2007, who knows what will happen, the 100k goal is still there, but sometimes you have to readjust as you go. Hope that clears things up a bit.

  10. Fontaine – Contributions to a Roth IRA can be taken out at any time for any reason. What you mention is applicable to earnings.

  11. another note on ROth IRA. you can withdraw from roth ira as Jonathan stated; however, there are only a couple reasons you can withdraw early without incurring the 10% early distribution penalty and/or paying tax on distribution of earnings. Radhames should do some calculations to determine if depositing into and withdrawing from the Roth IRA is wise for him.

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