Like my buddy the Mad Fientist, I’m a huge advocate of front-loading. If that’s a new term for you, this post is going to show you the hidden power of your paycheck. A quick search of the term “front-loading” offers this definition:
the process of “distributing or allocating (costs, effort, etc.) unevenly, with the greater proportion at the beginning of an enterprise or process.”
In our case, front-loading refers to our practice of diverting 100% of our paychecks into our various retirement-educational-healthcare accounts. Each year we start this process in January to make sure that we hit our savings goals…this is financial priority number one. The main accounts for these hardcore savings are the 457 and 403b accounts offered by our employer. We also save money in: IRA’s, an HSA (health savings account), an ESA (educational savings account), a taxable mutual fund, a 529 plan, and our son’s small UTMA account. Obviously, we have lots of places to put our money.
Our Front-loading Beginnings
In January of 2004 my wife and I stumbled into front-loading when we decided to contribute $3,000 each to our 403b accounts. At the end of January, we were thrilled to see that we had saved $6,000 by simply going to our human resources office and adjusting our 403b contribution amounts. Since we already had enough money for our living expenses, we made another $6,000 contribution with our February paychecks. Since February is a short month, we reasoned that we could suck it up financially and score another big win. After only 59 days, we had saved $12,000 without any financial strain!
Giddy with our savings prowess, we returned to the H.R. office to adjust our 403b contributions for the following ten months: March to December. In 2004, the 403b max was $13,000, and since we had already contributed $6,000 each, that meant we could contribute another $7,000 each to our accounts. We set up our monthly contributions of $700 ($7,000 / 10 months) and enjoyed our next ten months of substantial paychecks. At the end of December, we had maxed out our 403b contributions and our IRA contributions resulting in a total savings of $32,000 for the year. By saving hard early in the year, we were able to save a considerable sum with ease.
In 2005, we repeated our 403b front-loading ways by contributing our entire paychecks to our 403b accounts in January and February. However, in March I continued with my maximum contributions through April while my wife’s remaining 403b contributions were spread over the following ten months. In only four months, I had funneled $14,000 into my 403b! Around that time I learned about our district’s 457 plan and I immediately set up my own 457 account. By the end of December we had maxed out our 403b and IRA accounts in addition to my 457 account for a total of savings of $50,000.
Over the next four years we continued our aggressive savings by saving at least $55,000 every year. You can see our yearly numbers here, or check out the table below. You’ll notice that our front-loading peaked during the years of 2010 to 2012 when we managed to fully fund all of our retirement accounts. Take a look at what we’ve saved since 2003:
In January we decided to apply our front-loading habit to all areas of our personal finance. Here are some of the financial maneuvers that we made in January and February:
- Utilities * We made extra payments of: $500 on our electric bill, $255 on our water bill, and $120 on our internet bill. As a result, these utility expenses are covered at least through May. (The extra payments helped us hit a minimum spend on one of our travel hacking credit cards…woot!)
- Health Savings Account * In 2016 we anticipate having a high deductible health care plan (HDHP) until October 1st. As a result, in January we contributed $5,062 ($6,750 * .75) to our HSA at Elements Financial.
- Education Savings Account * Since our son’s birth in 2006, have invested $2,000 a year into his Education Savings Account at Vanguard. We made our 2016 contribution in January.
- UTMA * We have automatic monthly contributions of $10 to our son’s UTMA account at Vanguard. To bump up his total 2016 contributions to $300, we purchased $180 worth of shares in January. All contributions are made to VASGX.
- Storage Rental * I hate to admit this one, but we also pre-paid our rental storage unit through June…$420. Don’t worry we’re going to get rid of our excess stuff and the rental unit itself by the end of June.
- Apartment Rent * We set aside 6 months rent ($3,000) in a separate checking account. It’s nice knowing that we have rent covered for the rest of our time here. (I know what you’re thinking…$500 a month. Yeap, rural south Georgia does have its advantages. Did I mention that we have a pool and ZERO yard work?)
- Mutual Fund * In January, we put $3,000 aside in a savings account for a mutual fund purchase (taxable account) at Vanguard. In February, we invested $3,000 in the Total Stock Market index, VTSMX. This purchase was a little impulsive, but I wanted to invest the money before I was tempted to spend it on something else.
- Retirement Accounts * You knew we wouldn’t forget about hammering these accounts, right? In January we visited our human resource office and set up our 457 and 403b contribution amounts for 2016. Since we’ll only receive paychecks until August, we made our plans accordingly. We decided to put $3,000 a month each in our 457 accounts. In our 403b accounts, our combined contributions resulted in a monthly contribution of $3,462 ($1,418 for Edwina and $2,044 for Ed) From January to August, we will funnel $75,696 into our retirement accounts: 457 ($24,000 * 2 = $48,000) and 403b ($16,352 +$11,344 = $27,696).
As a result of hardcore savings via front-loading, our paychecks are laughable. You’ve already seen my 19-cent, whopper of a paycheck, now take a look at Edwina’s:
Let’s see, nineteen cents plus seven cents equals twenty-six cents. Yes, together Edwina and I earn less than a penny a day from our paychecks. But, don’t cry for us because we’re saving over ten grand a month on our teaching salaries thanks to our front-loading habit.
Our Front-loading Future
Because front-loading has helped us maximize our savings and minimize our taxes, we’re sure to continue this practice into the future. Going forward I envision us saving and investing 100% of paychecks anytime we take teaching jobs. The end result of our front-loading is twofold: we enjoy greater financial security and increased personal freedom. It is awesome what you can do with your life when your financial house is in order. (More on our future plans later…)
What do you think? Could you use our extreme front-loading approach to optimize your finances? If you know someone who could benefit from this post, please forward it to them. Thanks for helping me spread the word that financial independence is doable…it can be done!