Author Topic: Newlyweds: What to do with wedding money?  (Read 3774 times)

3_Antibodies

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Newlyweds: What to do with wedding money?
« on: February 10, 2014, 03:33:03 PM »
My husband and I just got married.  We received an unexpected amount of cash and I'm trying to figure out the best thing to do with it. 

A bit of background about our current financial situation and what is about to change for us in 2014:
Age: both 25
My income for 2013 was just over $53k.  If I were to work all of 2014, I would earn roughly $58k.  After taxes, benefits, and retirement contributions, I bring home an around $3k/month. 
My husband is a graduate student.  His income varies from month to month depending on which projects pay him and how many hours he puts in.  A low average would be about $800/month.  His tuition is free.
We have zero debt.  I recently paid cash for a used Yaris that is in great condition and gets 38mpg.  He owns a '98 Buick that has seen better days, but is currently getting him from point A to point B.   

Our budget is as follows:
Rent: $800 (We have a great gig house sitting for a professor.  It's a big house, ton of land, and much cheaper than our last apartment)
Groceries: $240
Gas: $250 (This is a generous amount, but I do have a 40 minute commute and he has a 20 minute commute.  Not ideal, but the house sitting gig is saving us money even after gas)
Insurance: $150
Phone: $25
Television: $80 (this will be dropped in <6 months)
Emergency: $500 (everything that doesn't fit into any other category)
Husband fun: $100
Wife fun: $100
Savings: remainder (usually ~$1300-1500/month)

Assets:
I have ~$8,000 in an online savings account earning 1%APY.  This was my emergency fund prior to getting married.
I have a bit over $5,000 in 403b retirement account. 
My husband has ~$20,000 invested and managed by his father.  They were supposed to transition the management of this money over the past couple of years, but that hasn't really happened.
Wedding gifts: we received about $22,000 in cash. 
_______________________________________
Total assets: $55k

Future plans: 
In the next six months, my husband will graduate and seek employment, and I will quit my job and start a master's program.  We are moving into his parents house while I'm in school.  This is primarily to help with his father who was recently diagnosed with cancer, but this will also save on expenses.  Unfortunately, my schooling will be quite expensive...tuition will be about $100k.  However, my earning potential will more than double upon graduation (most job postings for new graduates are around $120-140k).  As far as the job my husband hopes to find, he will probably make somewhere around $30-40k.  Our plan upon my graduation is to hit my school loans as hard as possible and pay them off in 2-3 years without allowing ourselves any sort of lifestyle inflation until the balance is $0. 

Given our plans for the next 2.5 years, I am specifically looking for input on what to do with the cash we just received from our wedding.  One thought was to open and max out Roth IRA's for each of us.  I believe we have until April 15th to make 2013 contributions?  That would take care of $11k.  This would leave another $11k plus the $8k I currently have in savings to serve as an emergency fund while my husband seeks employment and I am going back to school.  How bad would it be from a dollar cost averaging standpoint to max out our IRAs in such a short time period? 

Thoughts and suggestions?  Thanks!

Cheddar Stacker

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Re: Newlyweds: What to do with wedding money?
« Reply #1 on: February 10, 2014, 03:59:01 PM »
Congrats on the marriage, and the wedding gifts - very generous!

Don't worry about dollar cost averaging. If your plan is to buy investments, people have successfully proven it doesn't pay to wait. Jump all in as soon as you're ready.

Your income is low so you have low tax rates, which means a Roth makes some sense. However, your income is also possibly low enough to qualify for the savers credit so you should play with the scenarios a bit and see what a contribution to a Traditional IRA would do for you. It could have a bigger impact.

I only see one flaw with your plan - you are about to spend $100K to hopefully increase your income by $60K/year? That is a very, very large amount of money to spend, and it will put you in a big hole. Without going to school, and once your husband starts working you will be making about $100K/year collectively, and you will have no debt. You are also about to go into hyper savings mode while living with his folks, so you'll have no rent and limited expenses. I see this as the perfect storm to save very quickly toward Financial Independence, and it would be worth much more to me than any degree in the world. In 5 years your net worth should easily exceed $500K and that will open up a lot more options than going into $100K debt will.

If you are dead set on getting the degree, consider other schools, scholarship programs, employer paid programs, or anything you can to keep the cost down.

seattlecyclone

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Re: Newlyweds: What to do with wedding money?
« Reply #2 on: February 10, 2014, 04:03:31 PM »
Maxing out the IRAs isn't a bad idea. You only get a limited amount to contribute each year, and the window of opportunity for 2013 contributions is rapidly closing.

Alternatively you could just save the entire sum for your tuition. $22k will pay for about a quarter of your degree. It sounds like you've already resigned yourself to getting into debt to get your degree, and then enduring 2-3 years of aggressive repayment afterwards. Do you know what the interest rate on your loans is likely to be? If it's much above 5%, you may find that tuition is the best place for that money.

the fixer

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Re: Newlyweds: What to do with wedding money?
« Reply #3 on: February 10, 2014, 04:05:00 PM »
Agreed that DCA for $11k is peanuts. Just invest it, now. If you were talking about $50-100k+, it might be a different discussion.

Weedy Acres

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Re: Newlyweds: What to do with wedding money?
« Reply #4 on: February 10, 2014, 04:31:01 PM »
Is this an MBA you're going to pursue?  If so, have you exhausted all possibilities for scholarships and cheaper schools that will give you just as good of a credential?  If you're stuck with the $100K expense, then I'd use the $50K you've got for year 1, then the $20K you'll earn during the summer in between years for half of year 2, and come out the other end with minimal loans that can be paid off in under a year with your increased earnings.

Are you guys working for early retirement or just major a major stash?  I probably would skip the MBA if you're going to retire early, because your payback isn't very good if your remaining working life is short. 

SwordGuy

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Re: Newlyweds: What to do with wedding money?
« Reply #5 on: February 10, 2014, 05:14:23 PM »
Please tell me the plan is:

1) Partner gets 40k job.
2) You go back to school.

Instead of:

1) Partner looks for job.
2) You quit job and go back to school.
3) Oh! Shit! Partner can't find a job and we're screwed!

What kind of program is worth 100K in schooling expenses, particularly when you don't have to pay for room and board at the school?   That's a pot load of money!

Can you go slower and get your employer to pay for it via an education reimbursement?  That way you sock the money away and get the raise, too.  Plus have a safer doubled income stream with earlier promotional opportunities for you.

Thegoblinchief

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Re: Newlyweds: What to do with wedding money?
« Reply #6 on: February 10, 2014, 06:30:38 PM »
You're in a great position. You'd gotten good advice about re-thinking your advanced degree. Consider delaying it to defray debt load. Consider avoiding it altogether if your goal is early retirement. At your savings rate you'd be FI in the time it would take to get the degree and use the bigger income to repay it.

$100K is a lot for a degree. Is this something you really want, career wise? You don't need the income increase.

StarryC

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Re: Newlyweds: What to do with wedding money?
« Reply #7 on: February 11, 2014, 06:17:26 PM »
It seems like your expenses are probably about $2,000 a month.  I think you need $12,000 in the emergency fund.  This is 6 months of expenses, and enough to replace your husband's car if it gets to that, or do some substantial repairs.  It's also enough to pay start up fees if your housing situation has to change.  His car will probably give out at some point before you pay off your school loans.

Grad school Stafford loans are at 5.41% right now. You can borrow up to $20,500 a year, so your may have to get other loans to pay for school.  I think your best bet is to keep it for tuition if school something you are GOING to do, and you cannot pay for it another way.  If school is a "probably" then put the money in the IRAs.  It sounds like you might plan to out-earn the IRA tax benefits eventually.  $11,000. 

$100,000 for a "masters" with a job prospect of $120,000 to $140,000 almost sounds like law school.  You may be right that the jobs are there, you will get one, and that is the salary.  But be sure that they aren't tricking you.  Law schools said the "average salary" was $90,000.  That was 60% of people making $45,000/ 30% making $160,000/ 10% unemployed and not reporting.

  Also, search your soul now: do you want to be a stay at home parent/ part time worker?  That's cool.  It might not be possible if you have loans and are the higher income earner.  It might seem sucky not to "follow your dreams", but if you figure 3 years of school + 3 years of working to pay off the debt, you are then 31.  If you quit then, you probably lost money on the schooling. 

Your Husband will have an income of $30,000-$40,000 and your expenses will probably be about $20,000 a year (or less), right? So you would probably have $5,000 to $10,000 a year to pay for school.  That, plus the wedding money could cut your debt figure from $100,000 to $50,000, and mean you can get by without private loans.