
Subject: Re: Just starting to save Date: 5/17/2004 5:53 PM
Recommendations: 5
My wife-to-be and I are moving to Florida at the end of the month, and start new jobs in August. We've just finished graduate school, so this will be the first time we have real incomes, and we will now become a two-income household.

Congratulations on the new jobs and on thinking about early retirement so young. If you start now then you will have a tremendous advantage over those who start later even with higher incomes.

What is the most important part of being able to retire early? It's not necessarily a high income but a low level of expenses to income. So, keep your expenses low. Since you are just graduating can you keep your costs really low? Live like grad students for another year or two and if you do want to add luxuries do it slowly and savour each one instead of instantly ramping up your spending.

Our savings goals include:
* $30,000 for the downpayment on a home in 3 to 4 years,
* one full year's living expenses in cash or accessible savings
* to start saving for a car for her that we will buy in two years.
* Some sort of individual stock buy-and hold plan like a DRIP plan.
* Also, I want to plan for a best-case scenario of retiring when I am 57, or 30 years from now.

The emergency fund is important but you already have $28K in cash so that should be fine for now. As for the house, saving for it is fine but make sure that you will want to buy it in Florida. Nothing against Florida but this is your first job - are your sure that you will still be there for at least 5 years after purchase? You want to have a good guarantee of breaking even though even then you could lose. If you truly want $30K for a house downpayment and with only $800/month then it will take you about 3 years to save that up without other savings, investments, or loan paydown.

A second car could be a really cheap beater or a used sub-compact for somewhere in the $5K range. With two cars you can put up with a little hassle in repair issues. I would check into the feasability of using only one car. My wife and I do that now and I take the bus most days to work (company pays for the bus pass). If you are in company housing is it close to work? Can you bike or walk? If you really must get the car then you could do that in two years for ~$250 / month.

How much you really want the house and how sure you will really be there for long enough is up to you to decide. With that concern I would split the remaining $550 / month (took away car savings) into house savings and 401ks to the max limit (which you won't reach). Once the car is bought redirect the savings into your 401k. If you saved it all for your house downpayment (ie. nothing extra for the 401k and $250/month for the car for 2 years) then you would have the house dowmpayment in 4 years. It's all trade offs. You can have anything that you want but you can't have everything that you want.

When will this let you retire? It depends on how much you will need for spending. Intercst has a savings calculator spreadsheet on his site. http://www.retireearlyhomepage.com/software.html

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