With 1 year old twins, carving out time to accomplish finance related goals is difficult. After they go to bed, all my wife and I want to do is relax and enjoy each other’s company. Her idea of a relaxing evening does not involve logging into Vanguard and contributing to our Roth IRAs. Because of this, at the beginning of 2022 her Roth IRA was not maxed out for 2021. Luckily everyone still has until April of 2022 to max out contributions for 2021 or I would be in trouble for not following my own advice! We realized that our bandwidth wasn’t going to magically increase this year, so our methods would have to be adjusted. The solution had to be easy, simple, and not require constant attention from us. In short, we needed to automate saving.
Adjusting Our Allocation
Ever since we started our Roth IRAs, we have been allocating our contributions into the ETF versions of Vanguard’s index funds. Most of Vanguard’s index funds have an option to buy into them as if they were an individual stock. It makes it easier for folks who are just starting out (like we were) to buy into index funds without worrying about the minimum investing amount on the mutual fund versions. Buying the ETF versions required manually putting in purchase orders and always resulted in money sitting un-allocated in our accounts. If we contributed $50 and each share was $35, we’d be left with $15 sitting there until we contributed more. In other words, it was an inefficient way to allocate our investment. The first step in simplifying our Roths was to sell all of the ETFs and to move the money into the mutual fund options. We are still invested in the same index funds. But now if we wanted to contribute $1 at a time, it can be invested immediately without us having to do so manually.
Automating our Contributions
With allocations taken care of, we needed to streamline the contribution process. Luckily, Vanguard makes it really easy to set up automatic contributions. It lets you choose how often contributions will be made, how much, and where the money will be going. So we set it up so that money would go into our Roths on pay day. We checked the box for “max out my Roth,” so the amount going in every two weeks will result in our Roths being maxed out by the end of the year. And it was exceedingly easy to allocate a percentage of each contribution to the funds that we wanted. Even better, it takes Roth contributions off the list of things we need to do every month.
One Final Automation
Now most of our savings is completely automated. Contributions to my TSP and Marisa’s 403b automatically come out of each paycheck. We don’t have to worry about our Roth contributions anymore either. There’s one thing left for us to automate though: our saving for a house. We’ve been saving for a house and hoping that we’ll be ready to start keeping our eyes out by next spring. All of our house fund so far is parked in I bonds. We aren’t going to risk the money in the stock market because we’ll need it in the immediate future. And since money in I Bonds have to stay there for one calendar year, we don’t want to put any more in I bonds in case we find a deal quickly. Our plan is to put our house money into our “high interest” savings account. Yes, it feels painful to get 0.44% interest on our cash while inflation is so high. I don’t think there’s a better option for us and luckily the vast majority of our house fund is currently getting the 7.12% that I bonds are paying.
So how can we automate this? I noticed that we can set up automatic transfers to our savings account as well. I’ve been monitoring our cash flow over the past few months to see how much we can put towards our house. Our next step is to automatically transfer that amount from our checking to our savings account. This will make it easier to see exactly how much is in our house fund. And it will be one less thing for us to worry about while we’re trying to spend quality time together.
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