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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: LadyMustache on November 10, 2014, 08:44:17 PM

Title: Help wanted: where to stash our stash?!
Post by: LadyMustache on November 10, 2014, 08:44:17 PM

Dear Mustachians,

I would love to hear your prospective on where we should be putting our stash. We live in the US but used to live in the UK, which is why our stash is international! This is our basic situation:

Outstanding mortgage: $390k, 29 yrs left, but overpaying so more like 18 yrs, 3.85% (yes, I know, I know - face-punch-worthy borrowing!)
Home equity: $300k
Other debts: $0
Pensions: now maxing out 401k for DH and paid into various UK company pensions for previous 15 yrs. i have no US pension, but contribute £175 (about $280, or 17.5% of my income) into a UK personal pension scheme (I get 20% UK tax relief on this).
US savings: $60k (sitting in the bankís startlingly low-yield 1% savings account)
UK savings:  £55k (roughly $90k, sitting in low-yield 1.5% cash ISAs in UK. Subject to US tax now we live here)
Other savings: $12k (sitting in checking account as emergency fund), and about $8k in various low-yield pots for new car savings, next yearís childcare costs, unforeseen medical costs, and so on)
Income: $210k, potential bonus of $120-150k this year. I know this is vast and we are incredibly privileged, and probably need more than a face-punch for not being retired already, but this high earning is new due to a big promotion (past bonuses, which were much smaller, were what funded our home equity, one $30k clown car and are where much of our stash comes from. We have never spent those except for clown car.) This income is very precarious, as the work industry DH is in is very volatile.

As you can see, we have a fair bit of cash stashed in various pots, and lots of potential, but our money is doing nothing but depreciate. It is definitely not working for us, though it provides a sense of security.

DH is very risk-averse, as am I but to a lesser extent. He is happy to leave the money where it is Ďjust in caseí. In fairness, his job is very insecure and future redundancy is more a guarantee than a threat. He has been made redundant in the past. Everyone he knows in the industry has been made redundant or 'managed out' at least once over a ten-year career.

My job is self-employed and low-paid (about $17k) and life-affirming! I work part-time as we have young children.

My feeling is that we should maybe keep $20k in an emergency fund and invest the rest of our savings somewhere. I want our money to make us money so we worry less about job security. Iíd love for DH to be able to quit the day job and have more happiness.

The question is, how do we do this, and where do we stash our stash so it earns its keep? I have read all the MMM posts, but would love some input.

Here are the options as I see them:

Option 1: Throw all savings except emergency fund at mortgage, thus halving term and greatly reducing stress.
Option 2: Throw all savings except emergency fund at rental property.
Option 3: Throw all savings except emergency fund at Vanguard hedge funds.
Option 4: Throw money each month from savings at a private US pension for me.
Option 5: Spend $8000 (after tax credits) on solar panels.
Option 6: Do some sort of combination of above.
Option 7: Do something else I havenít considered yet.

Any and all advice would be appreciated. If there is anything I have left out, let me know and Iíll add/edit.

I havenít included expenditure as I have only been budgeting properly in the US (and on the new high income) for a couple of months and we are still working our way round a completely new country (with healthcare, different taxes, different daily outgoings). Obviously, I hope to grow the stash significantly over the coming months. My mustache is just a sprinkling of stubble at the moment ;)

Thanks,

LadyMustache
Title: Re: Help wanted: where to stash our stash?!
Post by: marty998 on November 11, 2014, 12:08:29 AM
Short and sweet is always a good way to answer:

1) Have your husband take full advantage of any pre-tax salary deductions to fund retirement accounts etc
2) Pay off the mortgage - all of DH's bonus should go here.

I'm not terribly familiar with US tax codes (supposably you can engage in various forms of income splitting - married filing jointly?) but where I am in Oz, investments should always be made in the name of the lowest earning spouse for the favourable tax treatment.
Title: Re: Help wanted: where to stash our stash?!
Post by: Spondulix on November 11, 2014, 01:10:15 AM
I'm not terribly familiar with US tax codes (supposably you can engage in various forms of income splitting - married filing jointly?) but where I am in Oz, investments should always be made in the name of the lowest earning spouse for the favourable tax treatment.
What kind of work are you in, LadyMustache? Marty brings up a good point that if you are self-employed, you can go about 3 years taking a loss (or breaking even) in your business and it won't raise any red flags. So even if you file taxes in the US as "married filing jointly", you can still do a Schedule C for your income to lower the tax that you would owe on your earnings. So if you work out of your house, use your car for work, internet, etc - depending what you do for work, you can count a lot of those things. Although getting taxed on $17k probably isn't significant given your spouse's earnings, but every little bit helps.

Also, my guess is your mortgage is that high because you're living in a high cost area (and that's actually a great rate for a 30-year mortgage). Some places it's just a necessity for cost of living like that, but the flip side is that you're earning that high of an income!
Title: Re: Help wanted: where to stash our stash?!
Post by: LadyMustache on November 11, 2014, 04:59:31 AM
Thank you for replies so far :)

I do work from home (freelance writer) and we will be filing jointly this year, so thank you for those pointers. I'm going to really look into lowering my tax liability. Everything definitely helps. My DH envisages that he can keep going at the income level he is currently at for another 2 yrs, hopefully before he buckles from stress or is given the push,, so in that time we want to build our stash as much as possible :)

It is a fairly average cost area, but we did choose a property well above average cost. We wanted land (2.5 acres) for dog, chickens, vegetables, and partly so we can't hear neighbors. Property taxes are very high here (compared to UK council tax), so nearly $1k a month! This is because the schools rock here and the community facilities are incredible. Part of me thinks we should move to a smaller house, but then I remember the $35k realtor cost, the fact I have a home office, carpool school runs with neighbors, don't need to pay for water or sewerage where we are now, and ultimately we are probably just too happy in the house to move right now!

Thanks again :)

Title: Re: Help wanted: where to stash our stash?!
Post by: Spondulix on November 11, 2014, 05:34:15 PM
That's great you're working from home cause then you can write-off a lot of home expenses... portion of your utilities, internet, mortgage, etc (related to the % square footage of your office). You can also write off a portion of anything major you've done that benefits the whole house (say, new HVAC or roof repair). You could also start an SEP IRA, which the contribution limit is 25%, but every little bit helps.

I'm sure others here know a lot more than me about this, but would a 529 (college fund) have a tax benefit?
Title: Re: Help wanted: where to stash our stash?!
Post by: Jacana on November 12, 2014, 06:25:57 PM
Short and sweet is always a good way to answer:

1) Have your husband take full advantage of any pre-tax salary deductions to fund retirement accounts etc
2) Pay off the mortgage - all of DH's bonus should go here.

I'm not terribly familiar with US tax codes (supposably you can engage in various forms of income splitting - married filing jointly?) but where I am in Oz, investments should always be made in the name of the lowest earning spouse for the favourable tax treatment.

The mortgages work differently here in the US, once they put extra money into the mortgage it is for all intents and purposes gone until they either sell or refinance. If they need the money due to a job loss, refinancing might be really hard. And selling is always an option but could take a while. Not saying its a bad idea, just that we don't have the flexible prepayment offset options like Aussies do. So there isn't any easy way to redraw extra payments from the loan if they need it, making option 1 of the OP very risky.
Title: Re: Help wanted: where to stash our stash?!
Post by: LadyMustache on November 13, 2014, 08:01:38 PM
Thanks for replies. Yes, until now our focus has always been paying off mortgage, but now I'm starting to see that might not be the route to FI. Has anyone got any opinions/advice on how much of our stash to put down as a deposit on a rental property? Or are people paying all cash? Or is the Vanguard fund a safer bet? Questions, questions!