These three steps are carried out simultaneously.
Step Four is 15% of gross income into retirement. We've been putting only 8% of my income into retirement, so we really need to kick this up. We are in the process of setting up an automatic draft into some Roth IRA's for this. Ramsey recommends Roth because it grows tax free. I'd rather pay the taxes now rather than later because I know that I have the money now. Who knows how things will look in thirty years??
Step Five is saving for kid's college. Regrettably, the school system I work for does not pay for tuition for dependants. (I literally do not know of another system or school that does NOT provide tuition assistence for faculty kiddos). We are on our own. Our goal, starting next year, is to save up $2000.00 per kid, per year into an Educational Savings Account. That won't pay for Harvard, but it will get them started. Scooter (at age 11) is the one I'm mostly concerned about paying for. Our goal is to pay off the house by the time she begins so that we can work to cash flow her first year. Which brings us to...
Step Six is to pay off the house early. Ramsey recommends no more than a 15 year fixed rate mortgage, which was the only thing we were doing correctly when we began his program. At this stage, he advises you to pay what extra amount that you can on the balance. We have about 12 years left on the note now and will really work to pay it off in seven years. We are starting off this year by paying an extra $80.00 a month which will pay a bit more than an extra payment per year. Obviously we will need to increase that to meet our goal.
Final thoughts tomorrow...
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2 comments:
I have a question about the type of IRA. If you were to invest in a traditional IRA (ie not ROTH) won't you have the money to pay the taxes later by virtue of the fact that the money is in the IRA earning interest? I don't know if the question makes sense, but if you can pay the tax now without having made any interest, can't you definitely pay it later after accruing interest for years and years?
Some suggest that the traditional IRA is better if you believe that your tax bracket will be lower when you withdraw the money (upon retirement in most cases) than it is now. This would seem to be the case for most people, although surely there are exceptions. Just some other things to think about.
pt girl,
Obviously I'd rather pay less--that's why I ask the question. If I'm retired and my tax bracket drops dramatically, then it wouldn't necessarily be less now versus a large chunk later. I'm just wondering why some advise ROTH while others advise the traditional, that's all. That's my thought.
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