Author Topic: Help me figure out what to do with our money!  (Read 3558 times)

moneymama

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Help me figure out what to do with our money!
« on: December 04, 2016, 11:54:50 AM »
Here's some background: I'm a stay at home mom, we have a 4 year old and a baby. My hubby's salary is about $53,000 a year and we live in a low cost of living area. I do bring in some extra income by babysitting but it's not tons and it's not consistent. I'm 32 and my hubby is 39. We owe $110k on our house, the interest rate is 3.75% and we have 18 years left. We have in retirement (with Vanguard): Me: about $49k and him $10k. I freak out because I feel like we are so behind with retirement savings!

Here's where I'm confused. We have $73k in savings because when I worked I saved all my paychecks in anticipation of being a stay at home mom. I don't know if we should take some of the money from savings and put it in retirement (our ROTH IRAs) , on the mortgage, or put it in some other type of investment account. It's not making hardly anything from interest in the savings account.

BUT that money includes savings for new cars for us (his car is 14 years old and mine is 11 so we'll have to replace them eventually), our emergency fund, and money for house expenses like new roof, windows, HVAC etc that we will eventually have to replace.

What would you do? I hate to put a lot of money in retirement and then need it, or put it on the mortgage and then not be able to access it. I just feel like that money sitting in savings is not working for us like it could. Maybe I'm just being crazy.

Shane

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Re: Help me figure out what to do with our money!
« Reply #1 on: December 04, 2016, 12:04:51 PM »
Reading Jim Collins' book, The Simple Path to Wealth: Your road map to financial independence and a rich, free life might answer some of your questions and help you come up with a good, simple financial plan. It only takes a few hours to read. It's definitely worth the time.

moneymama

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Re: Help me figure out what to do with our money!
« Reply #2 on: December 04, 2016, 12:10:21 PM »
Thanks, Shane! Looking into this now!

MDM

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Re: Help me figure out what to do with our money!
« Reply #3 on: December 04, 2016, 03:11:06 PM »
It's not making hardly anything from interest in the savings account.
At the very least, put it in one of the online banks found in the link in the Investment Order sticky.

Sibley

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Re: Help me figure out what to do with our money!
« Reply #4 on: December 05, 2016, 02:44:57 PM »
You do need an emergency fund, but $70k+ is most likely too much.

How much do you save monthly? If you're saving $1k a month, then you can cash flow that much monthly, or replenish your emergency fund that much monthly.

When you need to replace the car(s), what's your preferred method? New? Used? When do you need to replace the roof, etc?

Keeping a bunch of money in cash for an expense that isn't reasonably expected to happen for 10 years isn't necessary. You'd be better off investing it and letting it grow.

Dicey

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Re: Help me figure out what to do with our money!
« Reply #5 on: December 05, 2016, 02:48:11 PM »
How old are you?

Don't do anything until you tell us that crucial detail. I'll wait.

boarder42

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Re: Help me figure out what to do with our money!
« Reply #6 on: December 05, 2016, 02:51:36 PM »
How old are you?

Don't do anything until you tell us that crucial detail. I'll wait.

really did you read the post?

Dicey

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Re: Help me figure out what to do with our money!
« Reply #7 on: December 05, 2016, 03:04:20 PM »
How old are you?

Don't do anything until you tell us that crucial detail. I'll wait.

really did you read the post?
Reading on a small screen, it's easy to miss. I looked twice and missed twice. Thanks for putting me in my place, b42. Clearly it needed to be done, and so nicely, too.

seattlecyclone

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Re: Help me figure out what to do with our money!
« Reply #8 on: December 05, 2016, 03:32:37 PM »
If you move the money to a Roth IRA you can withdraw the contributed amount at any time with no tax or penalty due if you need it. I'd strongly consider doing that with the first $22k of the money (2016 and 2017 contribution limits for both you and your spouse). At 3.75%, you're likely to be worse off paying down the mortgage than investing in the market. However either option is likely better than leaving the money in cash, so do whichever lets you sleep better at night. Maybe keep $20-30k around as an emergency fund if you must, but get the rest of it working for you.

robartsd

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Re: Help me figure out what to do with our money!
« Reply #9 on: December 05, 2016, 04:06:21 PM »
I'll second the opinion of immediately maximizing both 2016 IRA contributions (and 2017 IRA contributions in January). What about other tax advantaged accounts? Does your husband have access to a 401(k) at work?

Long term, I'd plan to hold 1-3 months expenses in a savings account and get the rest working in tax advantaged investments. Unless you get multiple big expenses at the same time, you can deal with one then temporarily reduce investing until you refill this fund. Your backup if this isn't enough because multiple big expenses come close together is the Roth IRA contributions which you can withdraw tax-free at any time. While I think you should have some Roth IRA contributions in your tax advantaged mix, you want a large portion of your retirement to be in tax deferred accounts to optimize your lifetime taxes, so you might want to start a traditional IRA soon (I'd go ahead and max both your Roth IRAs for 2016 right away and spend time this month deciding if it would be better to continue with Roth or switching to traditional before making your 2017 contribution in January.)

wintertell

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Re: Help me figure out what to do with our money!
« Reply #10 on: December 06, 2016, 03:48:53 PM »
I'll second the opinion of immediately maximizing both 2016 IRA contributions (and 2017 IRA contributions in January). What about other tax advantaged accounts? Does your husband have access to a 401(k) at work?

Long term, I'd plan to hold 1-3 months expenses in a savings account and get the rest working in tax advantaged investments. Unless you get multiple big expenses at the same time, you can deal with one then temporarily reduce investing until you refill this fund. Your backup if this isn't enough because multiple big expenses come close together is the Roth IRA contributions which you can withdraw tax-free at any time. While I think you should have some Roth IRA contributions in your tax advantaged mix, you want a large portion of your retirement to be in tax deferred accounts to optimize your lifetime taxes, so you might want to start a traditional IRA soon (I'd go ahead and max both your Roth IRAs for 2016 right away and spend time this month deciding if it would be better to continue with Roth or switching to traditional before making your 2017 contribution in January.)

+ 1 to this. MDM has a spreadsheet (linked above in this thread)  that can help you calculate (based on your income)  whether or not you should prioritize Roth or Traditional in 2017. But I'd do the Roth for 2016 ASAP to get your dollars working while ensuring you have extra funds for a series of big emergencies if needed. If not, then your dollars are working to create tax-free growth in the mean time.

Crazycarl

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Re: Help me figure out what to do with our money!
« Reply #11 on: December 07, 2016, 08:11:17 AM »
I could be wrong but I think if you do not have an actual job with a W-2 (or self employed), I do not believe you can put anything in an IRA. Your husband can and should be maxing this out. Going up to company match, then maxing out the 5500 in ROTH IRA, then as much more as possible in 401k to the max.

I would suggest going to the full max on all the retirement accounts. See how that feels and try not to dip into the big pile for a couple months. You should be able to take at least half of that and put into an after tax account.

Every couple months, reevaluate your situation and either invest more of the pile if it is growing or staying the same, or leave it as needed to supplement your income.

You can always stop contributing to the retirement accounts, but you can never get back that time when you should have.

MDM

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Re: Help me figure out what to do with our money!
« Reply #12 on: December 07, 2016, 08:21:50 AM »
I could be wrong but I think if you do not have an actual job with a W-2 (or self employed), I do not believe you can put anything in an IRA. Your husband can and should be maxing this out.
Both spouses may contribute to an IRA as long as the combined income (whether from both or one only) is enough to cover the contribution amount.

See Retirement Topics - IRA Contribution Limits

moneymama

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Re: Help me figure out what to do with our money!
« Reply #13 on: December 07, 2016, 04:08:27 PM »
You do need an emergency fund, but $70k+ is most likely too much.

How much do you save monthly? If you're saving $1k a month, then you can cash flow that much monthly, or replenish your emergency fund that much monthly.

When you need to replace the car(s), what's your preferred method? New? Used? When do you need to replace the roof, etc?

Keeping a bunch of money in cash for an expense that isn't reasonably expected to happen for 10 years isn't necessary. You'd be better off investing it and letting it grow.

We probably save a few hundred dollars a month, nothing huge.  We would definitely buy used cars when we need them. The roof will probably be within 5-10 years I'm going to guess.

moneymama

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Re: Help me figure out what to do with our money!
« Reply #14 on: December 07, 2016, 04:09:24 PM »
How old are you?

Don't do anything until you tell us that crucial detail. I'll wait.

I'm 32 and hubby is 39 :)

moneymama

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Re: Help me figure out what to do with our money!
« Reply #15 on: December 07, 2016, 07:57:59 PM »
I'll second the opinion of immediately maximizing both 2016 IRA contributions (and 2017 IRA contributions in January). What about other tax advantaged accounts? Does your husband have access to a 401(k) at work?

Long term, I'd plan to hold 1-3 months expenses in a savings account and get the rest working in tax advantaged investments. Unless you get multiple big expenses at the same time, you can deal with one then temporarily reduce investing until you refill this fund. Your backup if this isn't enough because multiple big expenses come close together is the Roth IRA contributions which you can withdraw tax-free at any time. While I think you should have some Roth IRA contributions in your tax advantaged mix, you want a large portion of your retirement to be in tax deferred accounts to optimize your lifetime taxes, so you might want to start a traditional IRA soon (I'd go ahead and max both your Roth IRAs for 2016 right away and spend time this month deciding if it would be better to continue with Roth or switching to traditional before making your 2017 contribution in January.)

Great advice, thank you all! I will start moving some of the money over to our IRAs at Vanguard. Thank you for the info about the calculator- I'm going to look into that now :)

MDM

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Re: Help me figure out what to do with our money!
« Reply #16 on: December 07, 2016, 08:19:10 PM »
Thank you for the info about the calculator- I'm going to look into that now :)
The spreadsheet calculations can be found at case study spreadsheet.  Good luck!