Hi Everyone!
My husband and I are in a serious stache building phase of life and would appreciate advice on where to put our money. We’re making $340,000 annually (about $240,000 after taxes) and live off about $40,000 ($24,000 of which is housing -- more on this below). We’re both currently 25. I feel pretty good about our spending amounts, but here’s the summary so you can have a better picture of our expenses and assets.
Our current financial situation:
• No debt (already paid off student loans, bought a used car for 3,000 3 years ago).
• No mortgage.
• 250,000 in current stache, and we’re saving about 16,000 - 17,000 a month.
Expenses: About $40,000 a year ($3,325 a month)
• 1,950 – rent (We moved this past summer to our current location for my husband’s job, and we fully intend to go back to the much cheaper part of the country we came from in the next few years to buy a house and settle down. Currently, we couldn’t get a much better deal than this, and we’re pretty pleased with our small apartment. We’re renting a condo from an individual, and by asking around seem to be getting a very good deal compared to our friends who are renting from companies.)
• 400 – food (groceries, going out to eat, alcohol for the house. We are both vegetarian, and eat lots of fresh organic foods and shop a lot at farmers’ markets, so this is a value of ours and has already been significantly trimmed.)
• 50 – utilities
• 10 – laundry (coin machine in the building; this covers 5 loads of laundry per month)
• 20 – household supplies (toothpaste, light bulbs, TP, etc.)
• 100 – Misc. (we each get 50 for any clothing we want, fun activities with friends, work happy hours, coffee, etc.)
• 50 – Gifts ($600 per year for Christmas, Weddings, charities, etc.)
• 20 – Prescriptions
• 70 – My cell phone (down from $120 per month; his company pays his bill)
• 120 – Gas ( I have to commute about 25 miles roundtrip, but husband is able to bike to work; if we moved any closer to my work, he wouldn’t be able to bike to his.)
• 35 – Car insurance
• 30 – Car repairs/services
• 70 – Internet (tax deductible)
• 400 – air travel (partially tax deductible; I know this is a lot, but we started out trying to fool ourselves that we could get this down, but going back to my home for Christmas, thanksgiving and 2 other times in the year, as well as going to visit his family in the summer, makes it so that not exceeding this number is very hard. This is a non-negotiable for us, and we were well aware of the expense this would add when we decided to move for work.)
Assets:
• 112,000 Vanguard index fund
• 25,500 stock experiments
• 10,250 Lending club
• 20,000 My 403B
• 9,000 Husband’s 401K
• 30,500 Husband’s Roth IRA
• 20,000 Husband’s stock option current value (fully vested)
• 22,000 in savings account (we haven’t transferred this to another option yet – we try to move money once a month)
So here’s where our questions really start.
- My husband has maxed out his retirement account (his work matches his investments up to 3% of his total salary, meaning he can get $7,000 from his match, so he only has to contribute $10,500 on his own) because of my change in work place, my employer no longer matches anything for me. Is it worth it for me to continue to contribute to an IRA? It’s kind of hard to stomach doing that without any matching money. We currently have about 30K in traditional retirement accounts (20K in 403b and 9K in 401k). We’ve looked into converting this money to a Roth account because we are so young and most of the account value would be investment gains. Should we convert now even though our income is very high, or wait to convert in a few years when we’ve shifted to a lower income tax bracket? (I’m holding off on opening a roth IRA until we determine whether or not to convert my traditional 403b to roth.)
- As of now we have a total of about 60K in “old person” retirement money. How much money do we really want to put into our old person money accounts at this age? By my calculations, if we have 150,000 in our retirement accounts by the time we’re 29.5, assuming a 5% annual return, we will have about 650,000 by the time we’re 59.5 and next have access to that money. Isn’t that enough if we plan to have other “middle age” retirement money to live off of between the ages of 30 and 60?
- Also, because of our age we are more willing to be a bit risky with our money. Where should we be putting our “middle age” retirement money?
One complication with investments is that when we move back to the cheaper homeland we intend to buy a house (probably around 500,000) so we’re not sure how much we should have liquid at that point. This is probably 2-4 years out. It doesn’t make sense to be only counting on 5% interest (stock market) or even 10(+)% interest (lending club) if we’re going to be paying a high interest rate on mortgage (I have no idea where interest rates will be by then.) So basically we’re asking for ways to make our money work as hard as it can for us. We’ve really embraced the idea of lending club as a relatively risky way to make higher returns than our index fund. We were talking tentatively about putting about 30% of our total savings into lending club, and then the rest into index funds – does that make sense? We’re a little uncomfortable about the lack of diversity, and if anyone has any other cool ideas for us we would love to hear them.
I’m including an excel spreadsheet that we made detailing our financial picture post retirement (starting at age 30 and continuing for 70 years.) The plan is to spend 26,000 a year (we just kind of guessed on this number, but as it is about what MMM we think it is reasonable, and we do intend to have kids, so we don’t expect to be able to keep as low of a spending rate as we have now. Plus 24,000 a year on a mortgage (planning on buying a 500,000 – 600,000 house, meaning 150,000 – 250,000 would be down payment, and we’d take out a 350,000 mortgage over 30 years, which equates to about 2,000 monthly payments. This assumes that interest rates when we buy still make it such that it is a better option to have some sort of mortgage.) The spreadsheet also demonstrates that we think we can continue to count on 10,000 post tax income until we’re 60 (realistically this is very conservative, but I’d rather not have to take a job/project unless I/he really wants to.) The spreadsheet assumes a “middle age retirement” stache of 650,000 and an “old person retirement” stache of 150,000 plus we would need our down payment on our home (150,000 – 250,000.) Meaning that as soon as we get to a million we’re set.
Thank you so much if you got this far. I didn’t want to bore you, but I also wanted to give you a good look at our entire financial picture. Any advice you can give (riskier investment options, info about Roth conversions, etc.) would be very much appreciated!