How are we doing and where to invest?

[restless]

Hi all,

Long time lurker here, just wanted to post our stats and hear suggestions. We have no kids but are working on getting pregnant this year. We are both 33 yo.

I recently took a nice promotion that increased my overall compensation by 25%, it includes moving to a new city and my DH luckily found a job there that pays him better.

Gross Income: $141,000 Yearly bonus is $14K. I contribute 15% of my salary to 401K and DH doesn't have a 401K right now.

Just purchased a new home in the area we are moving to, we paid $220K (we decided to splurge) on 15 year loan at 4.25%. we put 20% down.

We have about $180K in retirement accounts and $20K in EF ( I know it is a lot but we are paying for piece of mind here)
We have no relocation costs as my company is taking care of everything, even paying us for the $25K hit we are taking on our condo. I'm up for a raise in Sept, it was already agreed at work which will put me at 25% of my current salary band so there's room for more increases (given I perform well of course).
We are also moving to LCOL.

So this is is just an approximate of what I think our monthly finances will go.

Net Income 7500
Mortgage -1350
Utilities -400 No idea yet
Cable -100
Cellphones -130
Gym -60
Student loan -146 Owe $18K @ 1.875
Property taxes -375
Brokerage Account -800 Vanguard
Roth IRA -400 Vanguard
Roth IRA -400 Vanguard
Groceries -150
Household Supplies -20
Entertainment -200

Leftover 2969

What are your suggestions for the rest of the money??

As for our goals, we want to have the opportunity to retire at 55, I would say we are low maintenance but like to splurge on vacations.

[debtheaven]

Welcome!

You will soon get a slew of posts telling you that you should invest everything in the market. You should, but you are already doing that. IMO you should also hedge your bets. If you are moving to a LCOLA, I would consider investing in rental RE. And even (oh heavens) pre-paying your mortgage A BIT, ie maybe upping your mortgage payment to 1500. Let me warn you in advance though, most people here wouldn't agree with that. We are exactly like you, low maintenance except when it comes to vacations when we tend to splurge. We do not have your income, but we are older.

I'm a firm believer in working on several goals simultaneously.

Obviously, you should definitely be investing money in your DH's retirement too. If he doesn't have a 401K I'm not sure what the best solution is, but you definitely need to put money aside for his retirement too.

Also, since you plan on having kids, you could put some aside for college. Not everybody would agree with that but we feel that sending young adults into the world saddled with student debt is not a great idea.

[restless]

Thanks Debt, I have thought of RE investment so I'm going to spend time getting to know the area well before I do that. As for my DH's retirement, that's why we started the Brokerage account.

I figured I was going to already get in trouble for having a 15 year loan

[debtheaven]

I figured I was going to already get in trouble for having a 15 year loan

You probably will, but not with me LOL.

[phil5185]

You guys are doing great!!

I would finish out the $16,500 on the 401k. And then add the rest to the Taxable Account at Vanguard - index funds or Target Funds are a good backup EF, accessible in a couple days, it allows you to keep your 'Idle Money EF' small. It will be your early retirement bridge fund, your kids' college fund, rental house fund, car fund, etc. Tax efficient, it grows tax deferred and it gets the favorable cap gains tax treatment.

You will soon run out of Roth eligibility (it appears like you have a great professional job, they paid your move, the condo shortfall, etc) so that $10,000 can also go to the Taxable Account.

BTW, you didn't mention house insurance, probably $500 or so?

I would keep both the 1.875% and the 4.25% loans for the full terms and use your own extra income stream for investing in things that return more.

[restless]

Thanks Phil! House insurance is going to be around $800/year, we are looking for qutes right now. I asked the mortgage bank to waive the escrow account as we much rather pay for it ourselves.

I will change my contribution in the 401K to max it out, we have Vanguard at work so not worried about the fund choices.

If I'm planning to own a rental in the next few years, should I still put it in the taxable account?

Another thing, we might need to replace my car soon, but I'm debating if it makes sense, it is 9 years old and the ac doesn't work well ( we are moving to Kansas, summers will be hot!) it might cost $1K to repair it and the car is worth $3K at the most but I think I'm better off paying $1K than getting a new car?? I do love my car

[mesquite77]

A lot of your numbers look like ours except that a couple of kids add expenses for us (daycare and groceries). We were also both 33 until a couple of weeks ago. It appears you are on track for retirement at 55. I think moving to a LCOL area while making good money will help with this goal.

We max my 401k, and put about $4k/yr into my wife's 403b. We are buying rental RE with our extra funds. The only other big difference between your budget and ours is charitable contributions. We're budgetting about $7,500 for charity this year. (I'm not judging, just adding something for you to consider.)

[debtheaven]

The only other big difference between your budget and ours is charitable contributions. We're budgetting about $7,500 for charity this year. (I'm not judging, just adding something for you to consider.)


This is a great point! We don't contribute that much but we give most of our charitable contributions to Kiva, which I (jokingly) call "the GOOD thing that keeps on giving".

So we only contribute 25 a month, but since we always reloan the money that comes back to us, it has a greater impact, especially after several years. We also contribute to our kids' favorite animals. Again, not staggering amounts, but regularly.

[restless]

Agree on the charity, will think about where to go.

[blackcard]

$2969 left over? You could just send it my way

[blackcard]

We did the 1/5 thing with our buckets of money plan. $2969/5 = $593.80

1/5 extra money against bills (not mortgage)
1/5 kept adding to EF
1/5 invested stocks and bonds
1/5 Extra against mortgage
1/5 We spend as we please. Thats about $300 a month for each of you.

This has worked out very well for us over the past 4 years.

[phil5185]

If I'm planning to own a rental in the next few years, should I still put it in the taxable account?

I do, that is my way of applying longterm returns to shortterm needs - ie, I keep all available cash in SP500 (or Spyders) and borrow for shortterm needs.
Eg, if we need a new car I could sell $33k of SP500, pay $3k for cap gains tax on the profit, and use the $30k to pay cash for a car. Instead, I 100% finance the car, leave my $33k in the SP500 (and add the $3000 to it by selling the old car privately). The goal is to double that $36k to $72k in about 6 yrs - while I pay $34,000 P&I over 60 months for a $30k car. Market volatility still applies - over a 35 yr period, you make a huge profit on some cars, you lose on some cars, but you average 10% to 12% on ALL cars.

it is 9 years old and the ac doesn't work well ( we are moving to Kansas, summers will be hot!) it might cost $1K to repair it and the car is worth $3K at the most but I think I'm better off paying $1K than getting a new car?? I do love my car

I don't pay much attn to what a car is worth, I look at it's future utility (stored mileage). If it is has less than 200,000 miles and is safe & reliable, I would rather spend $1000 to fix the ac than spend $4000/yr on the depreciation of a new one.

[Peace77]

There are several budget categories not on your list:
Insurance - Home, Health, Life and Disability


Cars- insurance, gas & oil, registration, maintenance, repairs, eventual replacement

Clothing

Medical / Dental -deductibles, co-pays, medication, anything not covered by insurance

Gifts- Christmas, birthday, anniversary, wedding, donations, etc.

Personal Expenses such as laundry, dry cleaning, toiletries, cosmetics, beauty/barber shop

Misc. subscriptions to newspapers & magazines, school and home office supplies

Home Fund for home repair, maintenance, decorating, replace furniture, etc.


20k is not a lot for an EF, increase it to 9 months worth of living expenses.


Put some of the extra onto the house.

Some into savings for your next vacation.

Some to either purchase rental property or REIT (real estate investment trust - sort of a mutual fund for real estate).

Some to charity.

Some to your favorite mutual fund.

[Deleted]

I agree with Phil's idea to contribute the extra to a "nonqualified" fund. If you are planning to retire at 55 you will need to think about how you bridge your money until you can start taking SS, pensions, or possibly 401k. Also depending on what happens with the Health reform, you might need to fund your health insurance. Make sure you understand your various plans. DH is likely to retire 5 months short of turning 55 (because of how his contract ends in 18 months) so he won't get access to his 401k until he's 59.5. It's not a big deal because we have other investments but could have been a real bummer otherwise.

I also like the idea of investing it in some cheap index funds (and I'm coming around to Phil's thinking on the the smaller EF). You may decide that owning rental property isn't for you. By keeping it in the market it's still working for you and not sitting on the sidelines.

Because we're reinvested our dividends, our stocks and stock investments are now just about where they were just before Sept 2008. Unfortunately I can't say the same thing about our real estate, lol. We've still made plenty of money but I think we're still a few years out before a full recovery.

[Urban Chicago]

I'm going to second the idea that you start 529 plans for your kids' college. With your income, there is very little chance they'll qualify for financial aid.

If you don't like Kansas's 529 plan, you can invest in another state, or just save outside of an official plan, but some if it needs to be earmarked for college.

I'm not a big fan of rental real estate, but if it floats your boat, go for it.

[restless]

@ Peace - Yes, I know there are items I left out but I don't budget that way, I'm more of big picture just need an idea where to put rest of the money. It will probably not be the whole $2,900. I'm very detailed oriented at my job (Finance arena) but not with my budget at home. I just need to set fixed amounts for investments and the rest I don't care how it is spent, if I feel like spending $100 at the spa then let it be, I'll just watch my spending for the rest of the month.


20k is not a lot for an EF, increase it to 9 months worth of living expenses.

In my opinion, I don't need more than $20K sitting in a savings account 9 months of living expenses if things got pretty tight and we both lost our jobs we would be fine for 7 months. I can always find something else to do, part time job, I can use my foreign language skills, etc.

I'll look into the long term disability. Thanks for your input!

@bonnap - I have thought about health insurance as well and will have to look into it.. If we retire at 55 we are not planning to use any of our 401K.

I plan to spend 1/2 the year in my home country (free/cheaper healthcare) and 1/2 here in the US (that's the plan anyway).

@urban - I've thought about the 529 as well but will now do research.

Thanks for your suggestions, tons of help!

[The J]

Feb 5, 2011 21:31:09 GMT -5 phil5185 said:

If I'm planning to own a rental in the next few years, should I still put it in the taxable account?

I do, that is my way of applying longterm returns to shortterm needs - ie, I keep all available cash in SP500 (or Spyders) and borrow for shortterm needs.
Eg, if we need a new car I could sell $33k of SP500, pay $3k for cap gains tax on the profit, and use the $30k to pay cash for a car. Instead, I 100% finance the car, leave my $33k in the SP500 (and add the $3000 to it by selling the old car privately). The goal is to double that $36k to $72k in about 6 yrs - while I pay $34,000 P&I over 60 months for a $30k car. Market volatility still applies - over a 35 yr period, you make a huge profit on some cars, you lose on some cars, but you average 10% to 12% on ALL cars.

it is 9 years old and the ac doesn't work well ( we are moving to Kansas, summers will be hot!) it might cost $1K to repair it and the car is worth $3K at the most but I think I'm better off paying $1K than getting a new car?? I do love my car

I don't pay much attn to what a car is worth, I look at it's future utility (stored mileage). If it is has less than 200,000 miles and is safe & reliable, I would rather spend $1000 to fix the ac than spend $4000/yr on the depreciation of a new one.

Actually, I'm going to disagree with Phil on this one. A car and rental are not the same things, particularly now. I could get 100% financing on a car. I no longer can get 100% financing on a rental property. The money you're setting aside for that purrchase shouldn't be invested in the market.

[restless]

Thanks for the suggestions.

We decided to go this way each month
$800 Roths
$1000 Savings - until we figure out what to do with it, maybe travel fund.
$2,600 Brokerage account. I need to do research on more funds.