Sunday, March 26, 2023
HomeMoney SavingReader Case Examine: A Trainer, An Editor and Three Cats in Texas

Reader Case Examine: A Trainer, An Editor and Three Cats in Texas

A part of Tara & Rob’s cat-full dwelling 🙂

Tara and her husband Rob stay in Texas the place he’s a highschool instructor and he or she’s an editor with a publishing firm. They’re fortunately child-free and cat-full by selection and personal their condominium. Whereas Rob enjoys instructing, he anticipates needing to make a profession change in some unspecified time in the future as a result of stressors of being within the classroom. Tara likes her job, regardless of her considerably stagnant earnings. The couple isn’t certain if FIRE is their objective or simply extra flexibility round Rob’s job. They’ve requested for our assist with their funding technique in addition to suggestions for efficiently residing a frugal way of life for the long-term.

What’s a Reader Case Examine?

Case Research tackle monetary and life dilemmas that readers of Frugalwoods ship in requesting recommendation. Then, we (that’d be me and YOU, pricey reader) learn via their state of affairs and supply recommendation, encouragement, perception and suggestions within the feedback part.

For an instance, take a look at the final case examine. Case Research are up to date by individuals (on the finish of the publish) a number of months after the Case is featured. Go to this web page for hyperlinks to all up to date Case Research.

The Objective Of Reader Case Research

Reader Case Research spotlight a various vary of monetary conditions, ages, ethnicities, areas, objectives, careers, incomes, household compositions and extra!

Completely satisfied hour with a good friend!

The Case Examine sequence started in 2016 and, to this point, there’ve been 83 Case Research. I’ve featured people with annual incomes starting from $17k to $200k+ and internet worths starting from -$300k to $2.9M+.

I’ve featured single, married, partnered, divorced, child-filled and child-free households. I’ve featured homosexual, straight, queer, bisexual and polyamorous individuals. I’ve featured girls, non-binary people and males. I’ve featured transgender and cisgender individuals. I’ve had cat individuals and canine individuals. I’ve featured people from the US, Australia, Canada, England, South Africa, Spain, Finland, Germany and France. I’ve featured individuals with PhDs and folks with highschool diplomas. I’ve featured individuals of their early 20’s and folks of their late 60’s. I’ve featured people who stay on farms and people who stay in New York Metropolis.

The objective is range and solely YOU will help me obtain that by emailing me your story! In the event you haven’t seen your circumstances mirrored in a Case Examine, I encourage you to use to be a Case Examine participant by emailing your transient story to me at

Reader Case Examine Tips

I in all probability don’t must say the next since you people are the kindest, most well mannered commenters on the web, however please notice that Frugalwoods is a judgement-free zone the place we endeavor to assist each other, not condemn.

There’s no room for rudeness right here. The objective is to create a supportive setting the place all of us acknowledge we’re human, we’re flawed, however we select to be right here collectively, workshopping our cash and our lives with optimistic, proactive solutions and concepts.

A disclaimer that I’m not a educated monetary skilled and I encourage individuals to not make critical monetary choices primarily based solely on what one individual on the web advises. 

I encourage everybody to do their very own analysis to find out one of the best plan of action for his or her funds. I’m not a monetary advisor and I’m not your monetary advisor.

With that I’ll let Tara, at the moment’s Case Examine topic, take it from right here!

Tara’s Story

Tara’s beloved passion

Hiya! My title is Tara. I’m 34 and married to Rob, who’s 35. We’re childless by selection, however adore our three cats. We stay in a big metropolis in Texas the place I work in publishing and Rob works as a instructor. We received married 9 years in the past and have lived in the identical metropolis since. We rented for just a few years after marriage and acquired a two-bedroom condominium in 2017.

What feels most urgent proper now? What brings you to submit a Case Examine?

We’re interested by making a sound monetary technique that enables us to have choices for our future. Extra particularly, we like the thought of reaching monetary independence inside the subsequent 10 to fifteen years and are questioning if that is doable or accountable?

We aren’t certain if we’d wish to retire early, work part-time, make profession adjustments, or go away jobs once they stop to be fulfilling. For instance, instructing takes a toll on Rob and we aren’t certain if it’s a profession he can do long-term for the sake of his psychological well being. Rob is an introvert, and the strains of instructing will not be sustainable for him. We don’t know if our objective of attaining monetary independence is a pipe dream for 2 individuals on salaries like ours, or whether it is sensible. We’re each very privileged, however don’t make a ton of cash.

We submitted our state of affairs as a Case Examine as a result of we now have questions starting from if our present monetary setup might enable us to retire early in addition to discrete, particular methods we might save extra. We’re dedicated savers, and we wish to see how far we are able to go and what we could possibly be doing otherwise. We additionally wish to learn to successfully steadiness our financial savings with the methods we wish to deliberately spend cash, like journey.

What feels most urgent proper now’s our general trajectory and if our present behaviors will assist us obtain monetary independence, and in that case, when. Our monetary future will assist us suppose via different questions on our profession, way of life, and the way we stay our every day lives. It appears urgent that we verify we’re allocating our investments correctly. We additionally lack data about taxes and wish to set ourselves up for future monetary success.

What’s one of the best a part of your present way of life/routine?

Rob actually likes to bake

One of the best a part of our present routine is the time we spend with one another. We’re introverts by nature, so most of our free time consists of exercising, going for walks, consuming scrumptious meals Rob cooks, watching films, enjoying video games, or pursuing our hobbies. I play piano and take classes from an area instructor. This is a crucial a part of my life, and I contemplate it financially non-negotiable. Rob paints miniatures for tabletop video games, a passion he began in adolescence and resumed through the pandemic. This has been an amazing inventive outlet for him, and has decreased his work-related stress degree. It has additionally boosted his confidence and vanity, particularly as he has begun to do minor fee work.

We get pleasure from our freedom and discover nice companionship in one another and our pets. We get pleasure from being child-free by selection, and don’t have any plans to alter that way of life. We deliberately stay quiet lives, and we now have created an setting that fits our personalities.

What’s the worst a part of your present way of life/routine?

The worst a part of our present way of life is Rob’s disturbing and demanding profession. Instructing is an important and noble occupation, and many individuals thrive within the classroom. Nevertheless it doesn’t swimsuit Rob. He’s quiet, prefers to work alone or in small group settings, and doesn’t reply effectively to emphasize. He’s been instructing on the high-school degree for seven years. For the primary few years, we anticipated his anxiousness to ultimately dissipate as he turned extra acclimated to his work. This hasn’t occurred and we each suppose his present profession isn’t sustainable for him over the long-term. Rob’s job has afforded us many benefits and he makes a cushty residing as a instructor. In actual fact, his wages exceed the median for lecturers in our space. As well as, he’ll retire from instructing with a pension, which is a profit far too few American staff get pleasure from. That stated, we each suppose he wants to start planning for a future outdoors the classroom.

I like my job and work in an incredible setting with an exquisite boss. I do business from home, which supplies me the flexibleness I must stroll canine within the neighborhood. That is one thing I actually get pleasure from doing, each as a result of it helps out associates and neighbors and since it helps me make somewhat extra cash.

The one criticism I’ve about my present work state of affairs pertains to my earnings. My wages have stagnated and certain is not going to improve within the close to future. This isn’t a problem with my job particularly; it’s a truth of life within the wider publishing trade. I earn a cushty earnings, however it’s disheartening to know that the one factor that might enable me to extend my wage is a radical profession change. Regardless of that, I’d hate to depart a job that serves me effectively and that I get pleasure from doing. General, I like my work and the approach to life it permits me to have.

The place Tara and Rob Need To Be in Ten Years:

The uncommon second of peace in our family


  • Near monetary independence. We aren’t certain if we wish to go full FIRE, however we actually wish to have choices.
  • We hope to nonetheless be on the financial savings trajectory we’re at present on.

Way of life:

  • We don’t see any cause to alter our way of life and routine. We don’t wish to buy a single-family dwelling and we don’t plan on transferring. We’re snug in our present condominium, and just like the peace of thoughts that homeownership brings.
  • The condominium way of life is ideal for us as a result of we don’t have a yard to handle or the opposite stresses that include a home. We even have nice neighbors and are in a great place within the metropolis. We like that our condominium might present a rental earnings sometime if we selected that route.


  • Rob wants a profession change. We aren’t certain what that can appear to be. He’s inventive and prefers to work alone, and in a quiet setting. He may do effectively with working from dwelling.
  • If we each labored from dwelling, nevertheless, we’d must rethink our housing state of affairs. I don’t plan to make any profession adjustments.

Tara & Rob’s Funds


Merchandise Quantity Notes
Rob’s internet earnings $4,801 Rob’s internet wage, minus the next deductions: well being and dental insurance coverage, 401k contributions, and taxes.
Tara’s internet earnings $3,467 Tara’s internet wage, minus the next deductions: well being and dental insurance coverage, 15% 401k contributions, and taxes.
Tara’s extra internet earnings from canine strolling $200
Rob’s annual AP grading earnings $125
Rob’s Trainer’s Pay Academics internet earnings $58
Month-to-month subtotal: $8,652
Annual complete: $103,824

Mortgage Particulars

Merchandise Excellent mortgage steadiness Curiosity Fee Mortgage Interval and Phrases Fairness (quantity you’ve paid off) Buy worth and yr
 Mortgage on major residence $153,696 3.00% 30-year fixed-rate mortgage $49,804 $203,500 bought in 2017 (refi in 2020 for decrease rate of interest)

Money owed: $0


Merchandise Quantity Notes Curiosity/Kind of securities held/Inventory ticker Identify of financial institution/brokerage Expense Ratio
Taxable Investments $219,287.94 We didn’t know fairly what to do once we began investing, so we began a Vanguard account with all of those totally different allocations. We haven’t contributed to something apart from the Whole Inventory Market ETF in awhile as a result of we realized it was redundant. Ought to we consolidate these into the Whole Inventory Market ETF or allow them to trip? Vanguard Whole Inventory Market ETF: $156,644.69
Vanguard Whole Bond Market ETF: $20,494.25
Vanguard Mid-Cap Development Fund: $12,357.55
Vanguard 500 Index Fund Admiral Shares: $8,114.27
Vanguard Well being Care Fund Investor Shares: $8,142.69
Vanguard Development Index Fund Admiral Shares: $6,923.28
Vanguard Fairness Earnings Fund Investor Shares: $6,611.21
Vanguard Vanguard Fairness Earnings Investor CL: 0.28%
Vanguard 500 Index Admiral CL: 0.04%
Vanguard Healthcare Investor CL: 0.30%
Vanguard Development Index Admiral CL: 0.05%
Vanguard Mid Cap Development Investor CL: 0.33percentVanguard Whole Bond Market ETF: 0.03%
Vanguard Whole Inventory Market ETF:  0.03%
Tara’s 401k $97,773.21 That is Tara’s Roth 401k. The charges appear excessive, however I really feel caught because it’s an employer-sponsored account with a match. Vanguard Goal Retirement 2050 Fund Vanguard 0.08%
Rob’s Roth IRA $46,680.34 Vanguard Goal Retirement 2050 Fund Vanguard 0.08%
Financial savings Account $19,746.62 That is our extra strong emergency and trip fund in a excessive yield financial savings account. 0.55% rate of interest Barclays N/A
Financial savings Account $552.56 That is our emergency fund. We preserve a minimal of $500 in right here to keep away from a cost. Earns basically 0% curiosity Financial institution of America N/A
Whole: $384,040.67


Automobile make, mannequin, yr Valued at Mileage Paid off?
Toyota Corolla 2012 $10,753 63,000 Sure
Toyota Scion XB 2009 $5,500 55,000 Sure
Whole: $16,253


Merchandise Quantity Notes
Mortgage $1,062.00
Groceries $750.00 Contains family provides and meals
HOA price $278.96 Required by our condominium neighborhood
Piano classes for Tara $220.00
Misc. $200.00 Garments (thrifted!), private objects, medical / dental / imaginative and prescient, and many others.
Common pet vet payments $150.00 Tough common of what we spend over a yr for vet take care of 3 cats
Journey price range $150.00 Varies by yr and relying on the price of the journeys we wish to take.
Restaurant cash $150.00 Contains date evening and outings with associates
Rob’s passion $100.00
Vitality invoice $85.00
Gasoline $75.00
Automobile insurance coverage for each vehicles $63.81
Cat meals for 3 cats $60.00 One of many cats has a particular weight-reduction plan
Cat inhaler $55.00 Sure, our cat has bronchial asthma. Who knew that was a factor!
Alcohol $50.00 Priorities, y’all
Family repairs $50.00 Very tough estimate of family equipment repairs
Automobile Bills $50.00 Inspections, oil adjustments, and many others.
Items $40.00
Farm Sanctuary donation $35.00
Cell telephones $33.55 Mint Cell for 2 telephones (affiliate hyperlink). Yearly complete is $201.23 an individual ($402.46 for each of us)
Pet Shelter donation $20.00
Charity donation $18.09
Spotify account $17.31
Film leases $15.00
Amazon Prime membership $10.00
PBS streaming membership $5.00
Month-to-month subtotal: $3,743.72 I’m not fairly certain the way to account for the random issues in life (the washer breaks, the automobile wants new brakes, we’d like a brand new equipment, a pet or individual has a significant well being difficulty, and many others.) However this can be a tough estimate! 
Annual complete: $44,924.64

*Be aware: my employer pays for our web since I do business from home, which is why it’s not listed above.

Credit score Card Technique

Card Identify Rewards Kind? Financial institution/card firm
Amazon Prime Rewards Visa Signature Card 5% at Amazon and Complete Meals; 2% at Eating places, Gasoline Stations, Drugstores;1% all different purchases Chase Financial institution
Financial institution of America Visa Signature 3% on-line buying; 2% for groceries; 1% all different purchases Financial institution of America

Tara’s Questions For You:

Our questions fall into two broad themes: discrete investing questions and broader questions on frugality as a life-style.

The woods are a cheerful place for us!

1) Investing?

  • As an alternative of throwing cash into our Vanguard Whole Market ETF, ought to I contribute MORE to my firm 401k to succeed in the annual IRS-allowed max?
    • I contribute 15% to this proper now, which exceeds my employer match requirement. I’ve a selection about what sort of contributions to make and I select to make Roth contributions.
  • Are there any steps we might take to optimize our funding earnings?
  • Ought to we consolidate all of our particular person Vanguard accounts into the Whole Market Index Fund?
  • Ought to we contemplate shifting our sources over to Vanguard’s Whole Inventory Market Index Fund Admiral Shares, as an example?

Background Data:

We’ve investments in a wide range of Vanguard mutual funds, though the overwhelming majority of our investments are concentrated within the Vanguard Whole Inventory Market Index Fund ETF. We wish to know if we must always shift our investments completely into this fund, or whether it is okay for us to carry investments in a wide range of different funds. They appear pretty superfluous, given the diversification offered by the Vanguard Whole Inventory Market Index Fund ETF, however additionally they appear innocent. I do surprise if we’re lacking alternatives by not wholly committing to the Vanguard Whole Inventory Market Index Fund ETF. Is it greatest to have extra in a single huge bucket?

Rob’s most up-to-date portray contest entry

Are there different mutual funds which may be higher than the Vanguard Whole Inventory Market Index Fund ETF?  What I like about our present technique is that we now have full management every month over how a lot cash we save. If we now have an emergency or want to save lots of for one thing, we are able to lower our investments for that month and use money move to pay for no matter we have to. If we turned to a extra aggressive technique with my 401k, we wouldn’t have as a lot management. Nevertheless, I feel financially we might be high-quality maxing out my 401k (and Rob’s) and having sufficient left over to stay, save, and make investments extra in our different account. I additionally really feel unusual about going via my employer every time I must make changes. I don’t really feel as in management and I don’t like the thought of my employer understanding an excessive amount of about my monetary state of affairs.

We additionally like the concept we are able to entry our cash higher via our present methodology than if extra have been saved in our 401k. Although I do know that’s the purpose: to not entry it! It’s simply peace of thoughts. What’s the greatest technique?

I do know a core tenet of most monetary recommendation is to avoid investing in particular shares. I do know we’re imagined to belief index funds with regards to investing our cash. Is there any nuance to that normal precept? Ought to we contemplate investing in particular shares with confirmed observe information, with the intention to probably enhance our earnings? I’ve thought of investing in Amazon, Costco, and different shares. We don’t at present maintain particular person shares, however I wish to know if that’s one thing we’d contemplate doing sooner or later.

2) Taxes?

Rob painted this for Tara, who actually likes birds

We don’t perceive taxes in any respect. We do not know how taxation is biting into our investments and we wish to plan an intentional technique for limiting our tax burden once we start to attract from our accounts. Would maxing out my 401k and investing much less in our Vanguard accounts assist with taxes? Ought to we open up one other Roth IRA for me? General, taxes are one thing we’re just about in the dead of night on.

3) Residing a Frugal Way of life?

  • How do you steadiness a dedication to frugality with a really human must get essentially the most out of life?
  • Ought to we be open to spending extra on issues that might enrich our lives earlier than we attain monetary independence (eg. journey, consuming out, films, and many others.)?

Background Data:

We have been closely influenced by Liz’s e book, Meet the Frugalwoods, and started saving aggressively years in the past. We’ve continued to refine our financial savings methods and now save greater than 50% of our earnings yearly. Our degree of dedication to frugality varies, however we’re persistently thrifty individuals who save aggressively. On the entire, this way of life has been nice for us.

However we now have had some conversations recently in regards to the methods frugality can turn out to be a supply of tension.

Typically Rob and I forgo purchases and experiences that might enhance our lives due to our issues in regards to the bills related to them. This may be demoralizing, and it causes us to overlook out on alternatives that might enrich our lives. As an example, we not often go away our dwelling for meals, and generally want we might exit on extra dinner dates. That is particularly vital for me, since I do business from home. It is usually vital for Rob, since it will be good to offer him an occasional break from cooking. We additionally thrift practically all of our clothes, and generally we might each like to purchase some new issues to spruce up our wardrobes.

General, we’ve encountered a darkish aspect to frugality, one that may restrict our experiences and life satisfaction. This could take a lightweight toll on our psychological well being. Non-essential purchases could be fraught with guilt. We are inclined to forgo issues we’d like and stay a life with out spontaneity and play.

Liz Frugalwoods’ Suggestions

Tara, Rob and all three cats are in fabulous monetary form! They’ve accomplished the pre-requisites for a wholesome monetary life and are within the luxurious place of turning their consideration to their investing technique. Very, very effectively carried out!

Questioning what these pre-requisites are? Right here you go:

  1. Rob is one of the best bartender

    Get rid of debt! It’s robust to maneuver ahead on monetary objectives in the event you’re weighed down by debt. I don’t embrace a low, fixed-rate mortgage on this definition of debt.

  2. Save up an emergency fund! That is 3 to six months’ price of your residing bills held in an easily-accessible financial savings or checking account.
  3. Monitor your bills! In an effort to understand how a lot you want in your emergency fund, you should understand how a lot you spend each month. The best method to do that is with a free on-line program, such because the one supplied by Private Capital, which is what I take advantage of and suggest (affiliate hyperlink).
  4. Contribute to your retirement account and be on observe given your age and deliberate retirement date! In case your employer provides a match, make sure to contribute sufficient to get the match–that is FREE $$$. In case your employer doesn’t provide a retirement plan–otherwise you’re self-employer–you should set-up a person retirement plan, equivalent to: an IRA, a Roth IRA, or a Solo 401k (that’s what I’ve).
  5. Create a bank card technique! That is an optionally available subsequent step in the event you’ve accomplished steps #1 -4. Utilizing a bank card responsibly–which implies paying it off in full each month–is a wonderful and simple technique to earn rewards. I like my money again card and earned $712.59 from it final yr. Right here’s how.
  6. Open a taxable funding account! That is one other optionally available subsequent step in the event you’ve accomplished steps #1 -5. Investing within the inventory market is one technique to have your cash earn more money. Questioning the way to get began? One of the best primer on investing (for my part) is JL Collins’ Easy Path to Wealth (affiliate hyperlink).
  7. Discover different tax-advantaged automobiles! One other optionally available step if #1-6 are carried out. Such accounts embrace (however are usually not restricted to): Donor Suggested Funds and 529s.

Earlier than delving into Tara’s particular questions, I wish to undergo all of their belongings.

Evaluate of Tara & Rob’s Property


Tara and Rob have a complete of $20,299 between their two financial savings accounts. That is nice, however, I’m not clear on why that is in two totally different accounts?

  • If it have been me, I’d consolidate to at least one high-yield financial savings account, such because the American Categorical Private Financial savings account, which–as of this writing–earns 1.75% in curiosity (affiliate hyperlink).
  • Tara & Rob would earn $355 on their cash in a yr simply by having it on this high-interest account.

They’re spot on with this greenback quantity as their emergency fund. Their month-to-month spending is $3,743.72, which implies three months’ price of spending = $11,231.16 and 6 months = $22,462.32. Good job, Tara and Rob!


We love our little out of doors house

Between Tara’s employer-sponsored 401k and Rob’s Roth IRA, they’ve $144,453.55 in retirement investments. Let’s examine this towards Constancy’s retirement metric:

Intention to save lots of at the very least 1x your wage by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67.

Since Tara & Rob are 34 and 35, we’ll say 2x their mixed earnings, which might be ($103,824 x 2) = $204,648. This implies they’re a bit behind, nevertheless…

I’ve questions on Rob’s employer:

  • Do they provide a retirement plan?
    • If that’s the case, I encourage him to discover the main points and discover out if there’s an employer match.
    • If there’s a match accessible, he ought to begin contributing to this instantly. Once more, an employer match is FREE $$$$.
  • Tara talked about a pension plan for Rob–they need to analysis the main points on that.
    • Does it require full vesting/a specified variety of years of service?
    • Is any portion of the pension accessible if Rob leaves instructing earlier than that service date?

Social Safety:

The above retirement complete additionally doesn’t embrace what they’ll every obtain in Social Safety. To determine their anticipated Social Safety advantages, Tara and Rob ought to:

  • Comply with these directions on the way to retrieve their earnings tables from (the federal government’s Social Safety web site).

This data, mixed with the solutions to my questions on Rob’s pension, will give them a clearer image of what they’ll count on to have in retirement.

Tara’s Query #1: Investing Methods

Alrighty, let’s flip our consideration to the meat of at the moment’s examine: investments. As I learn it, Tara’s investing questions boil right down to:

  1. Ought to they every max out their retirement accounts? (Tara’s 401k and Rob’s Roth IRA)
  2. Ought to they consolidate their taxable investments into their Vanguard Whole Inventory Market ETF?
  3. Ought to they put money into particular person shares?

1) Maxing Out Retirement Accounts?

WHOOPS edit by Liz on 9/1/22: I completely missed the half the place Tara stated her 401k contributions are Roth, which implies what I say beneath is fake. Tara’s 401k contributions are NOT pre-tax.

Like the remainder of the world, Rob realized the way to bake sourdough through the pandemic

Some retirement accounts, together with Tara’s 401k, are pre-tax. Which means you don’t pay taxes on the cash you contribute to those accounts. You do pay taxes whenever you take this cash out in retirement; BUT, this typically works in your favor as a result of your tax bracket ought to be decrease in retirement since your earnings is prone to be decrease (assuming you’re not working). If Tara and Rob wish to lower their taxable earnings, maxing out Tara’s 401k–which is $20,500 in 2022–is a straightforward method to take action. Nevertheless, Tara is appropriate that placing cash right into a 401k locks it up. You may’t withdraw from a 401k till age 59.5; in the event you accomplish that earlier than then, you’ll pay a penalty. As Tara famous, the entire level of a 401k is that you simply don’t contact that cash!

Rob’s retirement account–a Roth IRA–is taxed within the reverse method from Tara’s 401k. Right here’s a fast rundown on Roth vs. conventional IRAs:

Roth IRA (Particular person Retirement Account):

  • A Roth IRA is a retirement account that’s publish taxes.
  • This implies you pay taxes on the cash you set into a Roth IRA, however you don’t pay taxes whenever you withdraw the cash in retirement.
  • A Roth IRA grows tax free.
  • It’s good to be age 59.5 earlier than you’ll be able to withdraw cash penalty-free (though there are exceptions).
  • Your eligibility to contribute to a Roth IRA relies on your earnings and your specific tax state of affairs.
  • I like this Nerd Pockets article on Roth IRAs if you wish to learn extra.

Conventional IRA (Particular person Retirement Association):

  • A conventional IRA is a retirement account that’s pre-tax.
  • This implies you don’t pay taxes on cash you set into an IRA, however you do pay taxes whenever you withdraw the cash in retirement.
  • There are not any earnings limits. Anybody can contribute to a conventional IRA.
  • It’s good to be age 59.5 earlier than you’ll be able to withdraw cash penalty-free (though there are exceptions).
  • Extra about conventional IRAs right here.

Our firstborn

The underside line is that contributing to some kind of tax-advantaged retirement account (equivalent to a 401k, 403b, IRA, SEP IRA, and many others) is sensible for most individuals in most circumstances.

How a lot you’ll be able to contribute to a Roth IRA (and whether or not or not you might be allowed to) relies upon upon the way you file your taxes and your MAGI (modified adjusted gross earnings). The IRS has this useful chart outlining Roth IRA choices. Assuming Tara and Rob are “married submitting collectively” and their MAGI is below $204k, the utmost allowable contribution for every of them is $6,000/yr.

If he wished, Rob might additionally open a conventional IRA, which might be a pre-tax account (and thus, would each cut back their taxable earnings and improve his retirement financial savings). Nevertheless, that $6k IRS-mandated restrict continues to be in impact and your COMBINED contributions to each a Roth and a conventional IRA can’t exceed $6k.

Tara might additionally open a conventional IRA and contribute $6k yearly. That is another choice for additional lowering their taxable earnings, if that’s a precedence for them.

Nevertheless: earlier than making any choices about IRAs, I’d first wish to know what choices Rob has via this employer.

2) Consolidating the Taxable Investments?

Now we’ll flip our consideration to Tara and Rob’s different inventory market investments–their taxable investments. Retirement accounts (like 401ks and IRAs) are ALSO invested within the inventory market, however are taxed otherwise than plain previous taxable investments. With taxable investments, there are not any age, earnings, or contribution limits, and don’t obtain any preferential tax remedy. Therefore, their title: “taxable investments.”

If every part I simply stated sounded fully incomprehensible–however you’re curious–I HIGHLY suggest you take a look at the e book The Easy Path to Wealth by JL Collins (affiliate hyperlink). In the event you’re nonetheless with me, let’s forge on…

Tara’s query about whether or not or to not consolidate their varied Vanguard accounts into their Whole Market Index fund comes right down to capital positive factors taxes. You need to pay capital positive factors taxes on the income (not the overall quantity) your shares have earned through the years.

What you pay in capital positive factors taxes relies on a number of elements:

  • How lengthy you’ve had your investments:
    • Quick-term capital positive factors taxes–whenever you’ve held shares for lower than one yr–are larger than long-term capital positive factors taxes, which is but another excuse to maintain taxable funding accounts open for the long-term.
  • How a lot cash your investments have made since you purchased them:
    • In different phrases, how a lot these investments have appreciated since you bought them.
  • Your earnings.

For extra on capital positive factors taxes, take a look at this Motley Idiot article.

Rob’s favourite pasttime

To determine their capital positive factors publicity, Tara and Rob ought to take a look at their Vanguard portfolio for his or her “price foundation,” which is what they purchased the shares for. From this, they’ll calculate their potential capital positive factors.

If Tara and Rob discover that they’d pay nominal capital positive factors to promote their shares and transfer them into the Whole Market Index Fund, then I personally would consolidate. If it have been me, I might put every part into one complete market, low-fee index fund that matched my asset allocation wants and danger tolerance. The reason being that, on the whole, investing in a complete market index fund offers you the broadest doable publicity to the inventory market (in addition to the bottom charges).

In a complete market index fund, you’re basically invested in a teensy bit of each single firm within the inventory market, which supplies you a ton of range. If one firm–and even one sector–tanks, your complete portfolio isn’t toast. It’s the “not placing your entire eggs in a single basket” model of investing. It’s what I do, it’s what the overwhelming majority of FIRE people do and, better of all, it’s very, very straightforward to implement and preserve.

Going ahead, if it have been me, I might give attention to funneling all my extra cash into the Whole Market Index Fund. Tara and Rob even have Vanguard’s Whole Bond ETF, which is one thing plenty of people wish to put money into as a result of bonds are a lower-risk (though additionally lower-reward) funding car.

Is it Smart to Spend money on Particular person Shares?

For my part, completely not. Why? as a result of if that one firm goes down, your funding plummets. If Apple or Amazon or Netflix or whoever has a foul quarter, you’ve got a foul quarter. If you’re as an alternative invested throughout the whole inventory market, firms can go bankrupt and your portfolio will nonetheless bob together with the broader inventory market. Investing in a person inventory is “placing your entire eggs in a single basket.”

I contemplate investing in particular person shares to be a passion, not a monetary technique. In the event you actually get pleasure from day buying and selling and wish to do it for enjoyable, go proper forward! However I wouldn’t do it with cash I want. For my part, it’s not a lot safer than going to a on line casino.

Expense Ratios

Focaccia bread baked by Rob

I additionally wish to notice the expense ratios on Tara and Rob’s investments. Expense ratios are what you pay your brokerage (on this case, Vanguard) for the flexibility to speculate available in the market. Tara and Rob did a implausible job choosing a brokerage with glorious low-fee funds.

Tara is appropriate that the expense ratios are a tad larger on a few of their accounts, however none of them are outrageous. Generally, you wish to goal for the bottom doable charges as a result of there’s no cause to not.

For reference, the next three brokerages provide DIY low-fee funding choices:

  • Constancy’s Whole Market Index Fund (FSKAX) has an expense ratio of 0.015%
  • Charles Schwab’s Whole Market Index Fund (SWTSX) has an expense ratio of 0.03%
  • Vanguard’s Whole Market Index Fund (VTSAX) has an expense ratio of 0.04%

Questioning the way to discover a fund’s expense ratio? Try the tutorial in this Case Examine.

Tara’s Query #2: Taxes

Any tax choice will rely upon Tara and Rob’s gross annual earnings. Generally, in the event you work within the US, have a W2 earnings, and aren’t a billionaire, there aren’t actually all that many tax-advantaged choices accessible to you. You may–and may–make the most of what’s accessible. However, for the overwhelming majority of individuals–and particularly in the event you’re taking the usual deduction–there’s no “one bizarre trick” to saving cash on taxes. It will get extra refined if you’re FIRE’d (or within the tax yr previous to FIRE), which I’ve addressed in earlier Case Research.

Listed below are the usual tax-advantaged automobiles Tara and Rob can look into:

  • Retirement accounts, equivalent to 401ks and IRAs: I outlined these tax benefits above.
  • HSAs (Well being Financial savings Accounts): “A sort of financial savings account that allows you to put aside cash on a pre-tax foundation to pay for certified medical bills” (supply:
  • FSAs (Versatile Financial savings Accounts): “…a particular account you set cash into that you simply use to pay for sure out-of-pocket well being care prices. You don’t pay taxes on this cash. This implies you’ll save an quantity equal to the taxes you’ll have paid on the cash you put aside” (supply:

Listed below are just a few others that don’t apply to Tara and Rob, however could possibly be useful to different readers:

Tara’s Query #3: Residing a Frugal Way of life?

Date evening out!

I don’t need anybody to suppose I espouse depriving oneself in favor of saving cash! I do know it’s a tricky needle to string, however my hope is that people can discover their candy spot of “luxurious frugality” the place all their wants are met, they’re capable of afford some “needs,” and so they’re financially on observe for his or her future. On the finish of the day, life’s too quick to spend it doing stuff you hate and that’s the place I feel frugality is available in: it offers you the choice to stay a life you like.

The entire level of frugality is to save lots of on issues that don’t matter to you in an effort to spend on the issues that matter essentially the most.

That is values-based spending and it’s how I construction my spending choices. Am I spending on issues that assist my highest and greatest priorities? If sure, nice! If not, then it’s time for a re-adjustment.

I’ve written about this matter fairly a bit through the years, so I’ll refer Tara and Rob to a few of these oldies-but-goodies from the Frugalwoods archives:

From 2017:

Geez louise, evidently I used to be on a tear in 2017…

From 2016:

From 2015:

I hope these provide some perception into how I preserve frugality with out feeling the undertow of deprivation.

Objective Readability

A Center Jap unfold ready by Rob

I additionally surprise if a few of their monetary stress stems from the uncertainty round Rob’s profession? I sense that this weighs on each of them because it appears clear Rob needs to transition to a brand new job. I ponder if they could really feel extra snug with their discretionary spending as soon as they’re clear on Rob’s subsequent step and new wage?

To that finish, I encourage Rob to start actively job looking. We’re at present in a implausible job marketplace for staff and Rob ought to capitalize on that! I think about there are many non-classroom-teacher careers accessible to somebody together with his expertise, equivalent to: curriculum improvement, textbook creation, consulting, and many others? Former lecturers, please share your recommendation within the remark part!

Frugality Ought to Not = Nervousness

I used to be unhappy to learn Tara’s remark that, “…we now have had some conversations recently in regards to the methods frugality can turn out to be a supply of tension.”

Tara, you and Rob don’t have any cause to really feel anxiousness round your funds. You’re in nice form and also you’ve put your self within the place of NOT needing to really feel anxious about cash. By means of your clever decisions, you and Rob have given yourselves that present. Time to begin having fun with it! This doesn’t imply blowing cash on stuff you don’t want, nevertheless it does imply constructing aware treats into your way of life on the common.

Tara talked about a want to eat out and that’s one thing they need to completely do! Do it tonight! I’ll make the reservation for you if you would like.

Maybe set up a schedule for eating out–weekly, bi-weekly, month-to-month–then go to the restaurant and have an exquisite time understanding that you simply’ve deliberate, prioritized and saved to make it doable. Perceive that that is very totally different from defaulting to take-out each evening since you did not meal plan. That is strategic luxurious and it’s how frugality stays tenable for a lifetime. My husband and I eat out usually and each single time, it’s a pleasant expertise. We don’t stress about the associated fee as a result of it’s a deliberate expense. You may construct restaurant meals into your price range in precisely the identical method you embrace groceries, HOA charges, and many others.

Climbing in Arkansas

Right here’s the way to be strategically luxurious:

  1. Establish your priorities
  2. Spend on these
  3. Get rid of spending on non-priorities

There’s truthfully little level in being uber frugal in the event you’re not utilizing a few of your financial savings for the belongings you get pleasure from most in life. Optimizing each final expense, however being depressing, defeats the longterm objective of monetary stability. Why have cash saved up in the event you can’t ever get pleasure from it?


  1. Make a reservation at a restaurant, get pleasure from your date evening, really feel zero guilt, and decide to doing it usually! Let me know in the event you want me to make the reservation for you.
  2. Discover methods to include enjoyable and spontaneity into your ultra-frugal price range. Create a plan, put aside funds, and really feel assured that you simply’ve labored laborious to make this enjoyable doable.
  3. Think about consolidating your money accounts into one high-interest financial savings account.
  4. Analysis the retirement choices and pension supplied by Rob’s employer.
  5. Rob ought to start an lively job search, particularly in gentle of the present pink sizzling job market.
  6. Decide your capital positive factors tax burden and determine if it’s price consolidating all taxable investments into the Vanguard Whole Market ETF. Going ahead, plan to focus contributions in the direction of this account.
  7. Decide your mixed gross earnings after which contemplate if you wish to discover extra tax-advantaged methods, equivalent to:
    1. Maxing out Tara’s 401k
    2. Opening an IRA (for Tara, for Rob or each, being cognizant of the $6k restrict)
    3. Researching HSAs and FSAs. I’d begin with seeing what your employers provide.
  8. Cuddle up with the cats and pat yourselves on the backs–you’re doing nice!

Okay Frugalwoods nation, what recommendation do you’ve got for Tara? We’ll each reply to feedback, so please be at liberty to ask questions!

Would you want your individual case examine to look right here on Frugalwoods? Electronic mail me ( your transient story and we’ll speak.

By no means Miss A Story

Signal as much as get new Frugalwoods tales in your e mail inbox.



Please enter your comment!
Please enter your name here

Most Popular

Recent Comments