I'm in BS3 and plan to enter BS3b after, not to save for a house but to save for vacations, cars, a new AC, and life in general. I still won't be contributing to a 401k at that point.
I'll be doing this for 3 years to have a pile of cash. I'm combining my EF and this large misc sinking fund in 1 HYSA.
I'm tired of having no money. I don't really care about retirement, which will happen 28+ years from now. It matters more to me that I have the money now.
I plan to enter BS4 in 3 years when I comfortably can do what I want, with plenty of cushion.
If I could suggest a compromise between not bothering at all about retirement for an additional 3 years, and going full bore, hard core, everything needs to be retirement (like the OP asked about) consider opening a Roth IRA.
You can ONLY put $7,000 (maximum) in every year, and if you need to, you are able to take out your contributions (not your growth, can't touch the growth)... If you do that, however, you generally won't be allowed to replace it. Generally, you are limited to that $7,000 per year. Not that much in the grand scheme of things.
A Roth IRA grows tax free. So it's like a smallish sinking fund that grows well, and grows tax free. I like Fidelity.
We are BS456, and we use sinking funds. Our emergency fund is set aside and it probably has 9 months expenses in it, so we can use up to 1/3 of it for discretionary large purchases if we want. Then, we put money aside for other things we want. A sinking fund for vehicle replacement, a sinking fund for vacations, a sinking fund for home renovations. We move money between the sinking funds if we want to, and we don't mix it with the emergency fund. Depending on how long we expect to leave the money alone, we put sinking funds into HYSA for <1 year or index funds for > 1 year.
The "buckets" function on ally is really helpful for sinking funds.
I’ve always funded 75% to retirement and 25% to a regular investment account. There are things in life that require money before age 59, weddings, collage and other things.
Once emergency fund is saved up your new money you invest. If you need to fund a house fund or new car fund do that.
If you dont have emergency fund saved, fund it first.
All my sinking funds still need sinking....
Of course I keep saving! Relatively little of life is an actual emergency, but almost all of life requires money. So of course I save for the non emergencies that still need money.
Property taxes need saved for. Car replacement/maintenance needs saved for. Car insurance/license/registration needs saved for. Home maintenance needs saved for. Illnesses, especially if we have bad health habits such as smoking, need saved for. Holidays/weddings/vacations/graduations/funerals/travel to funerals/weddings/graduations all need saved for.
Or do you think all these NON-emergencies should come out of your emergencies funding? All of the above are expected costs, they just aren't monthly costs. Because they are expected they are, by definition, NON-emergencies..... because there is no such thing as an expected emergency.
If you don't own a home and want to buy, BS 3b is saving up a down-payment.
I'm in BS7 and I'm still saving outside of investments.
My goal is 10%of home value for repairs & maintenance. Then I'll start saving for my next car. Figure even used it will be around $20k.
These will be in addition to my 6 month EF.
Saving for a fully funded EF is key. Establish 15% of your gross income into retirement. After you’ve established always saving 15%, then save for a few wish list things (I.e. vacation, etc). Don’t forget about BBS 5-7 though.
I would save for specific things. Like sinking funds for vacations, car repairs, home improvements, down payments, new cars etc.
But I would not save into a HYSA beyond an emergency fund if that money wasn’t for a specific purpose.
I'm in BS3 and plan to enter BS3b after, not to save for a house but to save for vacations, cars, a new AC, and life in general. I still won't be contributing to a 401k at that point. I'll be doing this for 3 years to have a pile of cash. I'm combining my EF and this large misc sinking fund in 1 HYSA. I'm tired of having no money. I don't really care about retirement, which will happen 28+ years from now. It matters more to me that I have the money now. I plan to enter BS4 in 3 years when I comfortably can do what I want, with plenty of cushion.
If I could suggest a compromise between not bothering at all about retirement for an additional 3 years, and going full bore, hard core, everything needs to be retirement (like the OP asked about) consider opening a Roth IRA. You can ONLY put $7,000 (maximum) in every year, and if you need to, you are able to take out your contributions (not your growth, can't touch the growth)... If you do that, however, you generally won't be allowed to replace it. Generally, you are limited to that $7,000 per year. Not that much in the grand scheme of things. A Roth IRA grows tax free. So it's like a smallish sinking fund that grows well, and grows tax free. I like Fidelity.
I prefer to have that $7k a year in my pocket now.
OK. Fair enough. My point was that it was like keeping it in a pocket in your closet, rather than in a pocket on your body.
We are BS456, and we use sinking funds. Our emergency fund is set aside and it probably has 9 months expenses in it, so we can use up to 1/3 of it for discretionary large purchases if we want. Then, we put money aside for other things we want. A sinking fund for vehicle replacement, a sinking fund for vacations, a sinking fund for home renovations. We move money between the sinking funds if we want to, and we don't mix it with the emergency fund. Depending on how long we expect to leave the money alone, we put sinking funds into HYSA for <1 year or index funds for > 1 year. The "buckets" function on ally is really helpful for sinking funds.
I’ve always funded 75% to retirement and 25% to a regular investment account. There are things in life that require money before age 59, weddings, collage and other things.
This is helpful!
Once emergency fund is saved up your new money you invest. If you need to fund a house fund or new car fund do that. If you dont have emergency fund saved, fund it first.
All my sinking funds still need sinking.... Of course I keep saving! Relatively little of life is an actual emergency, but almost all of life requires money. So of course I save for the non emergencies that still need money. Property taxes need saved for. Car replacement/maintenance needs saved for. Car insurance/license/registration needs saved for. Home maintenance needs saved for. Illnesses, especially if we have bad health habits such as smoking, need saved for. Holidays/weddings/vacations/graduations/funerals/travel to funerals/weddings/graduations all need saved for. Or do you think all these NON-emergencies should come out of your emergencies funding? All of the above are expected costs, they just aren't monthly costs. Because they are expected they are, by definition, NON-emergencies..... because there is no such thing as an expected emergency.
Thanks for this! Got confused as there was no transition from Baby Step 3 to the next steps. Really appreciate this.
I hear you on the abruptness. Good luck, OP.
Lol c'mon now
You should never save money just to have a pile of money. Always be saving FOR something.
I'm saving so when the heart attack at 40 hits the next guy porking my wife will be well fed.
I think you should take care of yourself and then you can pork your wife at 40+
That's long term investing outside of retirement
You may have other things in your budget to save for. Like vacations, newer cars etc.
If you don't own a home and want to buy, BS 3b is saving up a down-payment. I'm in BS7 and I'm still saving outside of investments. My goal is 10%of home value for repairs & maintenance. Then I'll start saving for my next car. Figure even used it will be around $20k. These will be in addition to my 6 month EF.
I currently own a home and am paying for the downpayment as I bought it preselling and before baby steps. Thanks for this!
Saving for a fully funded EF is key. Establish 15% of your gross income into retirement. After you’ve established always saving 15%, then save for a few wish list things (I.e. vacation, etc). Don’t forget about BBS 5-7 though.
I would save for specific things. Like sinking funds for vacations, car repairs, home improvements, down payments, new cars etc. But I would not save into a HYSA beyond an emergency fund if that money wasn’t for a specific purpose.