Contributing to a 401(k), getting two weeks of vacation or creating a health savings account are standard practice for many working adults. But standard doesn't work for Anand Gan and Landon Westbrook.
The duo, married four years, have spent much of their lives working temp jobs as they tried to make it big in New York City -- Mr. Gan as a drummer, bassist and guitarist, Ms. Westbrook in musical theater. While Ms. Westbrook has held down a few staff positions over the years, Mr. Gan says he's had only one "real" job.
Mr. Gan, 37, splits his time between his communications consulting firm, DT Media New York, and a music production company, Flytrap Music Production, which he co-owns. Ms. Westbrook, 38, works full-time for DT Media, which Mr. Gan founded nearly five years ago.
Because they rely on unpredictable project assignments, Mr. Gan and Ms. Westbrook must set aside a part of each check for taxes and business expenses before paying themselves. What they do get, they save. "It's always in the back of my mind, 'What if I never work again?' I have to have the money there," says Ms. Westbrook.
Mr. Gan and Ms. Westbrook live a relatively modest life, sharing a rent-stabilized ($1,350 a month) three-bedroom apartment with their 22-month-old son, Harrison. Flexible work schedules allow them to keep child-care costs low. The couple's biggest indulgence, they say, is fine food.
Mr. Gan and Ms. Westbrook each have traditional IRAs, worth a combined total of about $39,000. While they try to contribute the annual maximum allowance, they admit it doesn't always happen. "For us, these things are a priority, but sometimes other things get in the way," says Ms. Westbrook. Harrison's birth and some health issues forced them to forgo some IRA contributions.
Because of their need for fast funds in case work dries up, Mr. Gan and Ms. Westbrook keep the vast majority of their money in cash. They have $160,000 in the bank, though they are looking at putting some of that money into retirement accounts.
In addition to a few individual stocks and a small 401(k) from an old job, Ms. Westbrook also owns a cheap fixer-upper in Savannah, Ga., where she's originally from. She used proceeds from the sale of her old New York apartment to buy the house. A renter had been covering most of the costs, but that lease is ending and the house may sit empty for a few months before a replacement moves in. Ms. Westbrook and Mr. Gan talk of using the property as a second home in the future.
With all the cash and investments added up, says Ms. Westbrook, "It doesn't seem like a bad chunk of change. But we also couldn't quit working on that kind of money. It's better than nothing, I guess."
The couple says their plans grew more focused once Harrison was born, as they bought life insurance and started contributing to a 529 college savings plan. But they recognize it will be easier for him to find loans for school than it will be for them to do the same during retirement, so they haven't put much into the account.
ADVICE FROM THE PRO: Annette Clearwaters , a fee-only certified financial planner and president of New York-based Clarity Investments + Planning LLC, is impressed with how the couple holds the line on expenses. "It seems like they're self-disciplined in the spending area," she says.
To avoid situations when life events "get in the way" of contributing to retirement accounts, Ms. Clearwaters recommends setting up automatic deposits. She says Mr. Gan and Ms. Westbrook could take a certain percentage of each check and put it into their IRAs, just as they do for business expenses and taxes. Any consistent schedule is better than a lump sum, Ms. Clearwaters says. "If you wait till the end of the year, I don't think you'll ever be as successful in putting money aside," she warns.
She also recommends the couple look into opening a SEP IRA because of the higher contribution limits and tax benefits.
Ms. Clearwaters commends the couple for having saved so much and keeping it liquid, explaining that they should have up to 12 months of expenses set aside because they're both self-employed. She says they could invest in index funds, spreading contributions throughout the year. Ms. Clearwaters recommends a conservative allocation of 60% stocks and 40% bonds, since this is where they would turn if their cash runs low and business dries up.
Ms. Clearwaters says Mr. Gan and Ms. Westbrook could afford to put some more money into the college fund because they're sitting on so much cash, even if it's "some nominal amount" like $50 a month.
Article by Finance Yahoo