Author Topic: How much cash should we keep and how much to invest from my paycheck.  (Read 1687 times)

minimalistgamer

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Topic Title: Reader Case Study - How much cash should we keep and how much to invest from my paycheck.

Life Situation: IRS filing status, number & ages of dependents, and anything else (state/country of residence, age, etc.) you are comfortable sharing.

I am 34, and my wife is 29. Married filing jointly. No kids. Living in United States.

Gross Salary/Wages: Before any deductions

My salary - $75,577 per year
Wife's salary - $10 per hour, comes up to around $1200 per month take home pay.

Individual amounts of each Pre-tax deductions 401k, HSA, FSA, IRA, insurance, etc. - whatever you have

Myself
Maximized my Roth IRA
Contributing 23% of my paycheck to 401k, very close to maxing out.

Wife
No Roth IRA
Contributing 6% to 401k to get company match.

Other Ordinary Income: None

Qualified Dividends & Long Term Capital Gains: All dividends and capital gains are being reinvested.

Rental Income, Actual Expenses, and Depreciation: None.

Adjusted Gross Income: $91,190

Current expenses: Provide breakdown and relevant details.  Aim to have “Miscellaneous” somewhere ~2.5%.  Much lower and you may be providing too much detail, much higher and you have an obvious problem of not understanding your spending.

Mortgage/Rent - None. Paid off our home this year
Utilities - $200
Food (Groceries and eating out) - $300
Internet - $54.99
Home insurance - Around $1300 per year
Property taxes - $2500 per year
Cell phone - $110
Fuel - $50
Miscellaneous expenses - $200

Total per month - $1232


Assets: Amount & description - include current asset allocation plan if you have one

Checking - $8,212.52
Savings - $30,031.94
401k [FUSVX, VISVX, FGOVX, FSTVX(Not contributing), FSIVX(Not contributing)] - $32,857.67 (This is my 401k)
Roth IRA [VFFVX (Not contributing to this anymore), VBMFX, VTSAX] - $20,788.46
Taxable investment [VTSAX]- $10,081.42
Cash - $107.00
Overseas - $421.09
Home value - $178,621 (Zillow estimate)
Total - $281,121.01

Liabilities: Description, original loan amount, rate, original length, and monthly payment (which should be consistent with a spreadsheet PMT calculation).  Add current balance and time remaining if close to final payment.
No liabilities.

Specific Question(s): Providing a detailed breakdown is important, so is asking for specific information so we know what kind of help/advice you are looking for.
My specific question is this - how to invest/save my paycheck. I get paid $3481 per month. I am setting aside $900 per month for Roth IRA contributions, home insurance and property tax. We can live on my wife's income without too much trouble. Given this situation, what is the best way to allocate $2581? Should I continue to add more money to the savings account? If so, how much is recommended? If not, should I invest everything in the taxable investment account? These are the questions I have been trying to answer for a while now, and I have been unsuccessful.

And in your personal opinion, how much would you allocate for frivolous spending, if at all?

You insight into this is much appreciated.
I paid off my mortgage! You can read the details here -
https://minimalistgamer.blogspot.com/2017/01/paid-off-our-mortgage.html

Feel free to ask any questions.

MDM

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Re: How much cash should we keep and how much to invest from my paycheck.
« Reply #1 on: March 05, 2017, 12:53:09 AM »
Is Investment Order helpful?

Hargrove

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Re: How much cash should we keep and how much to invest from my paycheck.
« Reply #2 on: March 05, 2017, 07:34:34 AM »
Well done.

Under 15k expenses for two and a house already paid off on sub-100k is outstanding.

If you want a clearer estimate for your wife's income, it's (hourly)*(2080) to get an annual from an hourly number.

Specific Question(s): Given this situation, what is the best way to allocate $2581?

1) Wife's Roth IRA
2) Wife's 401k
3) Taxable

Not taking advantage of spousal Roth IRA! 5500 a year. You're under income limit and married filing jointly. You could also get more advantage out of your wife's 401k, so go ahead and max that. The way to think about it is, "what would I need to FIRE at 65?" Aim to have that amount in your 401ks and Roths. Then save what you'd need to retire until 65 in taxable.

And in your personal opinion, how much would you allocate for frivolous spending, if at all?

You've already made it big AND paid off your home. Frivolous spending is just a question of how badly you want to escape your current jobs. You're in amazing financial shape for your age.

On emergency funds: I go way lower than you, but that's a personal decision too. I can't stand thinking I have 30k just sitting around doing nothing, but homeowners may want more. Your credit is probably great and your cashflow is high, so you could probably easily put half of that or more into investments, but if doing so would cause you to chew off your fingernails, it's ok to leave it.

minimalistgamer

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Re: How much cash should we keep and how much to invest from my paycheck.
« Reply #3 on: March 05, 2017, 11:26:03 AM »
Is Investment Order helpful?

I will check this out and get back to you if I have any further questions. Thank you for the link.


Not taking advantage of spousal Roth IRA! 5500 a year. You're under income limit and married filing jointly. You could also get more advantage out of your wife's 401k, so go ahead and max that. The way to think about it is, "what would I need to FIRE at 65?" Aim to have that amount in your 401ks and Roths. Then save what you'd need to retire until 65 in taxable.

And in your personal opinion, how much would you allocate for frivolous spending, if at all?

You've already made it big AND paid off your home. Frivolous spending is just a question of how badly you want to escape your current jobs. You're in amazing financial shape for your age.

Thank you for your kind words, much appreciated.

My wife wants us to move to Norway (she is Norwegian) at some point in our lives, so we are using money from her paycheck to increase our savings because I would imagine we are going to need the cash if at all we manage to move there. I am definitely going to consider it though, because I am not sure if its a good idea to invest in a taxable account without her having a Roth IRA account.

As for maximizing her 401k...she works for WalMart, and they partnered with Merrill Lynch, and her fund options are very minimal. I am not quite sure how to handle her paycheck. She doesn't really have any insights into this, and she would much rather let me handle...so at the moment, we are contributing the company match. I really need to give this more thought. The whole moving to Norway deal is confusing the hell out of me.
I paid off my mortgage! You can read the details here -
https://minimalistgamer.blogspot.com/2017/01/paid-off-our-mortgage.html

Feel free to ask any questions.

Hargrove

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Re: How much cash should we keep and how much to invest from my paycheck.
« Reply #4 on: March 05, 2017, 11:42:07 AM »
"Lynch is bad" is usually the opinion of folks here, but your fees would have to be outrageous for it to not be worth it to use a 401k.

Basically, look for anything that looks like a comprehensive (i.e. not just "small cap" or etc. fund), and just put her money in there. Expense ratios should be under 0.2%, but just make sure they're under 0.5% or so and you should be ok. You can usually identify the funds worth having by looking for ratios under 0.5%.

You already saved enough to move to Norway. It's your house. If you're living in Norway, you won't need your house in the states, and COL is pretty forgiving in Norway for health and kids if you want them. I don't know about housing costs there.

Cash to move to Norway, though? That's way too far to bring a ton of stuff with you. Sell it like your life depended on having nothing if/when you move, then buy back what you actually can recall missing after you get there, from something like Craigslist. The more you can separate yourself from attachments to stuff, the more free you would be to move for pretty little actual cash. But again, you already have a house.

All that said, don't move to Norway soon! It sounds like this is nowhere near fleshed out for you. I don't know how keyed into your finances your wife is, but it sounds like "only a little," and the wistful notion of living in Norway would be much better examined with a one or two month vacation and a real look at whether you could divest enough of your belongings to do it for a reasonable amount of money. You could even, at FIRE, offer someone a housesitting gig provided they mow the lawn and so on, rent-free, at your home stateside, and rent a cheap apartment in Norway for a year and see what you think.

minimalistgamer

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Re: How much cash should we keep and how much to invest from my paycheck.
« Reply #5 on: March 08, 2017, 06:16:53 AM »
> "Lynch is bad" is usually the opinion of folks here, but your fees would have to be outrageous for it to not be worth it to use a 401k.

I am definitely going to look into increasing the contributions to this account. At the moment, this is one big area for improvement.

> You already saved enough to move to Norway. It's your house. If you're living in Norway, you won't need your house in the states, and COL is pretty forgiving in Norway for health and kids if you want them. I don't know about housing costs there.

We were not a 100% sure if we should sell the house and move to Norway or keep the house here for a while. My wife doesn't have an opinion on this, but I feel having a rental here would be a good idea...I haven't put too much thought into it yet at this point. I am thinking I might let an agency handle the property...I honestly don't know if that is a good idea. I just like the idea of having a house here in case we ever want to move back.

> Cash to move to Norway, though? That's way too far to bring a ton of stuff with you. Sell it like your life depended on having nothing if/when you move, then buy back what you actually can recall missing after you get there, from something like Craigslist. The more you can separate yourself from attachments to stuff, the more free you would be to move for pretty little actual cash. But again, you already have a house.

I agree with you on this. We are going to sell everything we have here. We don't own a whole lot. We maintain a very minimalist lifestyle, therefore our possessions are not a whole lot compared to most people.

> All that said, don't move to Norway soon!

We are targeting 2020 to move to Norway, if it even works out. Immigration to Norway is tough...my wife will need to figure it out for us. I am not very sure about how things work out. I am in favor of taking a month long vacation there to see what life is like over there. I have been there before a long time ago, but I think I need to revisit to figure out some of the details.

All in all, I think I will contribute more to her 401k, and probably open a Roth IRA for her, and I am going to limit further contributions to my savings account.

Do you think that covers everything?
I paid off my mortgage! You can read the details here -
https://minimalistgamer.blogspot.com/2017/01/paid-off-our-mortgage.html

Feel free to ask any questions.

freya

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Re: How much cash should we keep and how much to invest from my paycheck.
« Reply #6 on: March 10, 2017, 06:39:21 AM »
Where you allocate savings is going to depend very much on goals.  Apart from the international move, are you looking to retire early, invest in a business, etc?

I expect the cost of living in Norway will be much higher than what you're used to.  You should research this, especially home prices, in the area you want to live.  Come up with an estimate for moving and startup costs, including home downpayment and financing costs, subtract what you think you would get (realistically) from selling your home, and then set that as a cash savings goal.


Hargrove

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Re: How much cash should we keep and how much to invest from my paycheck.
« Reply #7 on: March 11, 2017, 08:51:37 AM »
We were not a 100% sure if we should sell the house and move to Norway or keep the house here for a while. My wife doesn't have an opinion on this, but I feel having a rental here would be a good idea...I haven't put too much thought into it yet at this point. I am thinking I might let an agency handle the property...I honestly don't know if that is a good idea. I just like the idea of having a house here in case we ever want to move back.

I don't know enough about real estate investment, but it sounds like you don't either. You should be very sure you can take care of the rental from Norway before you consider renting it out while you're away. Remember - if you want to move back, you'll still have the house over there you can sell to do so.

Quote
All in all, I think I will contribute more to her 401k, and probably open a Roth IRA for her, and I am going to limit further contributions to my savings account.

Do you think that covers everything?

Looks like it. By the way, one additional note on 401ks... I got a better one at my job so I pored over this for a while. We had an odd meeting where a coworker asked if they were a fiduciary and it was like a gunshot was fired. They then stumbled over being good folks concerned with our money. So I dug hard to find the details, and it IS a better plan, but it's nowhere near as good as doing it myself. There are two key items to look at when measuring a 401k after whose funds they have.

One shitty fund in mine is JFIVX. Their expense ratio is 0.03%. Wow! That's better than Vanguard! But if you follow all the asterisks you uncover a few things. 1) the investment is a "sub-account" investing in an underlying fund. Meaning, you have an account with them directed to investing in this thing. Ok, that's weird. Why? It gives room for the company to make money on you by not investing all your money. 2) Then, tragically, asset allocation reveals an unbelievable 3.6% in cash allocation in the fund. You're lending them thousands or even tens of thousands of dollars that won't grow for you and are an interest-free loan for them to make money on. And they're even charging you a tiny bit on top of that for the privilege.

Their total-stock-market fund is 4.4% cash allocation. It's completely ridiculous. So as a 401k newbie, you're looking for funds in sub 0.5% expense ratios with cash holdings sub 0.5% as well. Once you leave a job maintaining your 401k, get it out with a rollover to avoid losing that money. It's STILL worth it for the tax advantages and lowering your income bracket, but it's not worth it if you no longer work there and could direct it yourself.