Hello there! This is typically a time of personal finance reflection to me as it's bonus month, and I do some inventory to ensure efficencies in 401k and ESPP to ensure maximum potential (or adjust down for the remainder of the year if my bonus pushes me over limits). This year, I'm going a step further, and I find myself with more questions than answers. Rather than hire a financial advisor, I'm trying to figure some things out on my own to greater drive efficiencies in my financial life, yet some of these are big decisions and am seeking some second opinions!
This what is top of mind to me right now:
- Putting cash to work: I'm sitting on too much cash -- I've known this for a while, but now I'm willing to do something with some of it. Do I put this to work in the market, start aggressively paying down the mortgage, or something else? Last weekend, I put together an exact ammoritzation schedule spreadsheet and ran several scenarios (some of these are pretty exciting) including crazy things dropping like a lump sum principal payment, $5000 monthly, or just an extra $1,000 or so a month for a while and see how that feels. In researching, there's a lot of debate out there on this topic, and I know it doesn't have to be black and white, and can do both (invest and early payments -- which is where I am leaning).
- Asset allocation: Over time, I've accumulated quite a bit of MSFT stock through bonuses vesting and my ESPP contributions (10% discount). It's gotten to the point that I think I need to build in some more diversity into my portfolio. I've never sold any of this, and I'd take a pretty significant capital gains hit selling some of this - my initial positions have grown quite a bit (some nearing 300%) since I started acquiring it in 2015. I would be open to selling bonus shares as they vest for a smaller capital gains hit (I think I can choose which positions to sell, right?)
- Define goals: My main goal right now is growing wealth (and reducing taxes as much as possible). I know that's not a goal in itself. This is something I probably need to do for myself rather than get help on. I took an interest in personal finance since graduating college debt-free and starting my career 12 years ago. I've worked hard, and had some luck along the way. I've always been frugal, don't carry debt, and had good money habits instilled growing up. I haven't really defined what early retirement would look like. For now, I'm throwing out a goal of retiring comfortably at 50 (16 years). I've always saved for the future, but I'm at a point where I've accumulated some real assets and want to leverage them to better drive efficiencies.
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Life Situation: Male, software developer @ MSFT, 34, Bought my house 3 years ago. Girlfriend of 5 years lives with me. Proposing by EOY, no kids, just the dog. Pacific Northwest.
Gross Salary/Wages: After recent merit raise (earlier this month) now make $186K a year + cash bonus and stock bonuses (base up slightly from last). I don't factor in bonuses in my yearly budgeting, and allow them to be a pleasant surprise. I have about $200K in unvested company stock that will vest at various points over the next 4-5 years.
GF just got a raise to about $80K or so. She gives me $800 a month to aid in the mortgage, bills, and groceries. I count this as income in the below.
Monthly Income/Expenses: Income: Average of $11,800 over the last 8 months. I include ESPP contributions (~$2,000), what my GF pays for monthly bills in this ($800), and $400 in interest income -- so a under $9,000 without these (I do not include 401K contributions in this).
Expenses: Average of $4,400 over the last 8 months. Mortgage/taxes/insurance is about $3000 (and that's with me throwing a few hundred at it at month). We live pretty simply and don't do or buy many frivilous things -- meal plan based on what is on sale, cook mostly at home, I take my own lunch to work 90% of the time. Minimal cable package, no cleaning service, no lawn service, and do most house maintenance myself with the help of YouTube. Do little dares with myself like not spend money during work/week days. Would rather watch a movie at home on Netflix than go to a movie theater. Fun for us is a pint or two at a local brewery on a Saturday, really nothing lavish. My point is, there are not many efficiencies to further milk here.
Assets: - 401k: ~$400K in an S&P 500 Index fund. I've been maxing this for years, employer matches 50% of everything. Don't ever see not doing this.
- Roth IRA: ~$100K in various Index funds. I haven't contributed to this in several years since I started out-earning the usual limits, but I discovered earlier this month that I can do an after-tax 401K contribution and in-plan rollover into a Roth IRA through Fidelity's industrialization of this process. I've enabled a contribution of small percentage of this, but I haven't had a paycheck since doing so. I don't think I'll max it next year, I surely could if I started allocating cash to paying the mortgage for a while.
- Individual: ~300K in MSFT stock. Will pay a dividend of about $1000 quarterly, set to reinvest.
- Individual: ~105K in FZROX, Fidelty's zero-commission and zero-expense ratio S&P 500 Index fund. I've just been dumping extra cash in here for the last year and a half or so.
- Cash: ~250K in a 2% money market. I take the $400 or so interest a month and pull it into checking, and inevetably gets swept off into FZROX. Want to better put this to work somehow, while still maintaining an ample emergency fund.
Most recent Zestimate of my house is $719K (paid $585K in 2016). It's too much house for just us, but I bought it as an investment with the intent of raising a family here. It's in a quiet neighborhood with a good school system. See us staying put for a while.
Debts: Just the mortgage. Girlfriend is debt-free as well. We both own our cars outright, and won't need to be replaced any time soon.
Mortgage: I'm 3 years into a $464,000 loan @ 3.75%. I put 20% down, so no PMI. I've paid down a little extra here and there, but nothing drastic. $426,500 principal due.
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Well MMM'ers -- have at it. What to do for maximum efficiency? I am leaning towards a combination of slightly increasing monthly principal payments, mega-back door Roth, and diversifying out some of my MSFT into index funds.