READER CASE STUDY: Marrying a rich girl. Can you help?

[DCook2257]

Fellow Mustachians,

EDIT: I removed intro paragraph to shorten post as it was unnecessary

I am a mid-20s young man about to enter a very profitable financial situation via marriage to a great woman, also in her mid-20s.We are both fairly thrifty and are completely debt-free. We have college degrees and steady jobs. We each have reliable, working cars that are paid-in-full. Our annual combined salary may vary, but will probably stay in the current range of $130-150K in immediate years to come. Because a family member started a successful company years ago, we will receive about $25K per year in cash dividends. We have already saved about $100k in 401k/IRA retirement savings and are maxing out our 401K/IRA accounts every year. We have about $75k in combined cash savings. We don’t own a home or any other noteworthy assets. Once we get married, our monthly expenses will likely be in the neighborhood of $2,000 per month for everything (rent, transportation, food, etc.).

Our goal is to build our nestegg big enough so that if we have kids in a few years, she will be able to be a full time mother and I will be able to do things I really care about, which may produce substantially lower income (I foresee our combined annual income dropping to $50k in a few years if we follow this path). We want to build passive income that will generate enough to live a fairly frugal lifestyle. We are not opposed to any options (real estate, mutual funds, stocks, bonds, P2P lending), and have a working understanding of each.

My question (at risk of sounding like a douche): what am I supposed to do with all this money to help us generate passive income to last a lifetime?

Here are the details again:

Total debt (student, credit, mortgage): $0
Combined annual salary (before tax): about $130-150k
Annual cash dividend: $25k
Current combined retirement savings: $100k
Current Cash savings: $75k
Projected combined monthly expenses: $2k

[AlanStache]

Depends on what you want to do.  Do you want to be a land lord?  Do you want to start a small business?  If you just want a second regular passive income stream look at VNQ with some diversification. Figure out where you want to live once the kids come, this will dictate renting/buying a home now.  Getting a mortgage might be more of a challenge once you two retire/change jobs.

I am not sure I or anyone else here can plain out your life :-)  You (and S.O.) need to fill in some details.

[ingrownstudentloans]

I have one question, before I get into the investing/life-choices side of things. 

Does she have a sister?

[DCook2257]

Depends on what you want to do.  Do you want to be a land lord?  Do you want to start a small business?  If you just want a second regular passive income stream look at VNQ with some diversification. Figure out where you want to live once the kids come, this will dictate renting/buying a home now.  Getting a mortgage might be more of a challenge once you two retire/change jobs.

I am not sure I or anyone else here can plain out your life :-)  You (and S.O.) need to fill in some details.

Thanks AlanStache! To be honest, we're still figuring out what we want to do. A few small business ideas, not really sure where we want to live yet. I think mobility is important at this point so we will probably rent a cheap apartment to start as we like to travel. Thanks for the VNQ tip.

Out of curiosity, what would YOU do if in my shoes?

[the fixer]

The mechanics of managing that money really aren't too complex... it all boils down to asset allocation to control risk and tax efficiency to control expenses. There's lots to read on investing to understand this. The bigger questions are: what are you going to do with all this extra money and what are you going to do with your life? It's up to you how you answer these questions.

Anything you do will probably lead to you amass an enormous amount of money, much more than you need to live on if you maintain your frugal lifestyle. You will need a plan for what to do with that money. Some options are charity and venture capital.

I think you should start by getting introspective about how you see yourself making a positive contribution to society. In the middle class the answer is usually to work a job and buy stuff, and in this way they are participating in the economy. But you are now upper-class, and such a simple answer is no longer sufficient. Starting your own business is one possibility. There are many others, including in public service. Have you considered running for office?

Having large amounts of inherited wealth can give you a lot to think about philosophically; I have a tiny bit but even at my level this happens. You may question whether or not you "deserve" this. I think the answer to this question is to try to think of the most good being done with money at any given time. Challenge yourself to compete with those you see around you doing good in the world. Not having to worry about money anymore means that its pursuit should not define you, and you will have to figure out what does define you now.

For instance, should you be a landlord? I would argue that you should only do this if it's for a reason other than to make money, since you are quickly going to get to a place where you don't need more of it. If you feel strongly about making sure quality rentals are available in your community, though, it might be a good fit.

[AlanStache]

VNQ:  I would bet 50% of the readers here would know I was referring to a Vanguard REIT and most all would not see it as a "tip", first step for you might be to read every article MMM has written on investment/asset allocation.

Me: I might work a bit longer to fully lock in the FI just so I had the option to not work once the kids were around.  Retiring at 30 instead of 28 is not the end of the world :-) 

Also be aware that it sounds like that 25k/year is not FDIC ensured, ie it could go away.

But keep your expenses low, invest the difference, enjoy life.

Sounds like you started the game of life with some cheat codes on :-p  Dont blow it.

[EconDiva]

I have one question, before I get into the investing/life-choices side of things. 

Does she have a sister?

If she does have a sister, any chance she likes women? 

[chasesfish]

I don't want to burst your bubble, but I don't think you're creating rage/jealousy/ect.  a 25k annuity isn't "rich", but its certainly a generous family support structure.

It sounds like you and your future spouse have low expenses, good savings, and a nice secondary source of non-employment income. 

I think you and her have the freedom to go figure out what you like to do and what you enjoy.  Is it business?  Is it productive work?   You have a very good income at a young age, but I'd suggest working hard for another 3-5 years building your stash up to around $750,000 before doing anything like quitting work and traveling for a year.  That'll produce enough income together so there's no issues later on about around living off the other's family assets, ect.  While doing this, go figure out what really drives you.  Its different for everyone.

[Argyle]

I would also advise you to consider what I would advise any woman in your shoes to consider.  Do make sure you have a marketable skill and some work experience, because it's always possible that things could go south.  The chance of divorce is not zero for anyone, statistically speaking.  Of course no one goes into a marriage planning to be divorced, and it may well turn out to be a foolish caution.  But I think everyone should have a marketable skill and some work experience.  Even billionaires have turns of fortune.  It might help to think: if both of you were less well set up, what field would you be interested in going into?

[frugaldrummer]

Well, you sound like you have a very good start and I sincerely hope that your marriage is a lifelong one.

However - being the victim of a divorce after 24 years of marriage myself, I'll give you one caution - if you divorce, that $25k/year obviously goes to HER, so make your financial plans in such a way that there's enough to support you in a divorce situation before you completely give up employment (or, at least, keep your hand in in some way so that you COULD return to work if need be).

If your combined income is $130k, and you have this extra $25k, I'm guessing your after-tax take-home is roughly $100k - $110k?  And if your expenses are $24k/year, you could theoretically be saving $75k/year (more if you reduce your taxes by maximizing tax-sheltered retirement accounts). 6 years of savings like this, plus your existing savings, would put you in that $750k range mentioned above, which would give you a 4% withdrawal rate amount of $30k/year.  The extra $25k/year from the dividend would be gravy (I agree with the poster above that you shouldn't treat that dividend as if it will always be there - stuff happens).

Do bear in mind, though, that:
A) your wife will likely quit working before that 6 years is up to stay home with a child, so it may take a bit longer to save up to that amount
B) your expenses will go up somewhat once children arrive

One other thing you might consider now - usually I would advise against buying a home when your plans are so unsettled.  BUT - real estate prices are quite low right now - likely to be the lowest you will see in the next 20 years or so of your life.  And raising a family on a limited early retirement income will be infinitely easier if you have a paid-off home.  How to reconcile the two?  If you live in an area where it pencils out, you might consider buying a home and either 1) sharing it with roommates that help you pay off the mortgage or 2) turning it into a rental property so that you have a toehold in the real estate market in case it takes off again and you want to move into a family home in a few years.

[Self-employed-swami]

Fellow Mustachians,

BEFORE YOU READ THIS: I strongly suggest you don’t. My financial situation is amazing for my age. You will probably hate me by the time you are done reading, or maybe you already think I’m an ass-hat.

My question (at risk of stirring up fits of jealousy & sounding like a douche): what am I supposed to do with all this money to help us generate passive income to last a lifetime?

Is this a joke? I was expecting a trust fund baby with at least a mid seven figure in net worth when I read that. I don't think the people here will be jealous of a 200k networth and 150K+ annual income.  I've been here for a while and I've some pretty big numbers.

I agree RFS.  I'm not jealous of you, as I was in a better position than you at 26. However, I got reactions like that from many 'average' people that aren't frugal.

I'd reccomend you two get a prenup. Her family assets should remain hers, and yours should remain yours.

[CommonCents]

Fellow Mustachians,

BEFORE YOU READ THIS: I strongly suggest you don’t. My financial situation is amazing for my age. You will probably hate me by the time you are done reading, or maybe you already think I’m an ass-hat.

My question (at risk of stirring up fits of jealousy & sounding like a douche): what am I supposed to do with all this money to help us generate passive income to last a lifetime?

Is this a joke? I was expecting a trust fund baby with at least a mid seven figure in net worth when I read that. I don't think the people here will be jealous of a 200k networth and 150K+ annual income.  I've been here for a while and I've some pretty big numbers.

I agree RFS.  I'm not jealous of you, as I was in a better position than you at 26. However, I got reactions like that from many 'average' people that aren't frugal.

I'd reccomend you two get a prenup. Her family assets should remain hers, and yours should remain yours.

Agreed - a prenup and working long enough to have your own stache in case things go south is highly recommended. 

As a side note, it seems to me your tone was unduly provocative.  Was there a reason you were trying to stir things up, such that you phrased things as you did?

[CDP45]

Fellow Mustachians,

BEFORE YOU READ THIS: I strongly suggest you don’t. My financial situation is amazing for my age. You will probably hate me by the time you are done reading, or maybe you already think I’m an ass-hat.

My question (at risk of stirring up fits of jealousy & sounding like a douche): what am I supposed to do with all this money to help us generate passive income to last a lifetime?

Is this a joke? I was expecting a trust fund baby with at least a mid seven figure in net worth when I read that. I don't think the people here will be jealous of a 200k networth and 150K+ annual income.  I've been here for a while and I've some pretty big numbers.

I actually started laughing reading his numbers too because they are so average for two college educated people living on the coasts - hasn't he seen all the engineering threads with grads starting over $100k?? The whole point of MMM is that if you have to work you're not rich!! Lol. Its funny cause it's cute and ignorant of how expensive the cost of living is...wish I could feel that excited about that salary!

Go to bogle heads to learn how to invest. Max out tax advantaged accounts, you got a lot of saving to do unless you plan on retiring to a trailer and eating oatmeal..

[happy]

OP, if you need to ask the question, then you don't yet know enough to know how to keep the money. You need to get serious about educating yourself about investing in stocks, or real estate or as others have said starting a business. It really depends on what appeals to you which we can't tell you: folks here vary: some have stocks, some do real-estate, some have made money from a business, then use either of those vehicles to stash it. Likewise  a popular view here is to follow Bogle type index investing, but plenty of others invest in other ways. Again your accumulation phase may require different strategies to once you  are maintaining or drawing down. There are lots of threads here listing good investing books/websites etc to get started with.

Thats what I'd do in your shoes. Its what I've done in the last year or so:  I know how I wish to allocate future savings before I even get them. I keep updating and refining as I learn new things and situations change.

[Anatidae V]

Yup, think you're a bit of an asshat. Mostly for the tone - although it sounds like maybe you just can't believe your luck.  But I don't envy you more than I envy any other person on here. The adive on this thread is very good, and if you take it I'm sure that money won't all slip through your fingers.

[Random]

A friend once remarked to me that the hardest way to earn your money is to marry into it.  Most friends that I know that have done so have experienced no shortage of family drama around money. 

You and your sweetie should have very frank discussions about core values that bind you.  Then follow a path that, at least for a while, ignores the family income.  Let it build in the background.  Live your lives as your lives. 

[oldtoyota]

Our goal is to build our nestegg big enough so that if we have kids in a few years, she will be able to be a full time mother and I will be able to do things I really care about, which may produce substantially lower income (I foresee our combined annual income dropping to $50k in a few years if we follow this path).

Good to know that taking care of your children won't be something you really care about. Might want to share this sentiment with your future wife so she knows what she's getting into.

Oh. Dear. Lord.

[DCook2257]

OP, if you need to ask the question, then you don't yet know enough to know how to keep the money. You need to get serious about educating yourself about investing in stocks, or real estate or as others have said starting a business. It really depends on what appeals to you which we can't tell you: folks here vary: some have stocks, some do real-estate, some have made money from a business, then use either of those vehicles to stash it. Likewise  a popular view here is to follow Bogle type index investing, but plenty of others invest in other ways. Again your accumulation phase may require different strategies to once you  are maintaining or drawing down. There are lots of threads here listing good investing books/websites etc to get started with.

Thats what I'd do in your shoes. Its what I've done in the last year or so:  I know how I wish to allocate future savings before I even get them. I keep updating and refining as I learn new things and situations change.

I may have overstated my situation a bit. Maybe it helps to know that I grew up in poverty so this good fortune is kind of a shock to me. I was trying to be succinct and to the point which is why I wrote it this way.

Thanks for all of the advice. You guys are right, I am going to do quite a bit more reading. Just ordered the Investors Manifesto based on many recommendations in this forum. Asset allocation is something it looks like I need to learn more about.

[DCook2257]

Our goal is to build our nestegg big enough so that if we have kids in a few years, she will be able to be a full time mother and I will be able to do things I really care about, which may produce substantially lower income (I foresee our combined annual income dropping to $50k in a few years if we follow this path).

Good to know that taking care of your children won't be something you really care about. Might want to share this sentiment with your future wife so she knows what she's getting into.

For the record, my future wife wants to be a full-time mother and I want to support her in that. Didn't think I had to clarify that I will also love my kids and my family will always come before career/money. Frankly, I don't aspire to be rich, but I consider it a huge privilege to have money and want to be wise with it which is why I'm seeking advice. Maybe miswritten/misunderstood.

[Chiron]

Our goal is to build our nestegg big enough so that if we have kids in a few years, she will be able to be a full time mother and I will be able to do things I really care about, which may produce substantially lower income (I foresee our combined annual income dropping to $50k in a few years if we follow this path).

Good to know that taking care of your children won't be something you really care about. Might want to share this sentiment with your future wife so she knows what she's getting into.

Wow, the wolves have come out!  That was a very unfair inference of the OP's sentence.

Why so hard on the OP everyone?  He feels like he has a very good financial situation, and guess what?  He does!  Oh, not as good as the top posters on these forums, but better than 99% of the billions of other people in the world.  He also seems genuinely interested in learning the best way to proceed.

To the OP:

1) Don't worry about a prenup.  It's your future wife that needs one, not you.  If the family money is conditioned on there being a prenup in place, that is something she and her family should take care of.  However, do make sure you know what it says and its implications if she asks you to sign one.

2) Just by coming on the forum and asking questions, you're off to a good start.  Don't let the negative posters dissuade you.  Continue to read, learn, and consider the advice of people in forums like this one (and be wary of advice coming from people with a monetary interest in your heeding their advice).

3) Agree with the other posters not to treat the in-law money as a stable source of future income.  However, still be sure to invest it wisely and tax-efficiently.

Good luck!

[willn]

What would I do? Continue to max 401k/IRA/Roth.  Any excess, save in cash to buy a house outright. That won't be popular advice here for most situations as you may give up some investment income upside.  But with your income stream and frugal habits it will only take a few years to pay cash for a house.

Given that your wife wants to stay home, you want to do something you love for possibly less salary, having a paid for house will give you a LOT of security for your family, and a great basis for financial success moving forward.  Generating wealth over the long run isn't hard if you have a financial and emotionally secure home base to work from.

So in the next few years identify a geographic location with modest home prices but a reasonably thriving business environment, probably near a bigger metro area where you'd like to live and that has good schools.  Figure out how much you'll need to buy a house there in a few years and start saving.  If you have the stomach to watch those savings drop 50% in the short run then invest the money at Vangaurd.  You may end up needing to get a mortgage if that happens.

Something to consider.  Lots of people view a mortgage as a lifetime commitment but with your income and age, a paid for house is a distinct possibility.
 

[dragoncar]

Yup, think you're a bit of an asshat. Mostly for the tone - although it sounds like maybe you just can't believe your luck.  But I don't envy you more than I envy any other person on here. The adive on this thread is very good, and if you take it I'm sure that money won't all slip through your fingers.

Haha yeah I got the asshat vibe only because anyone who's been paying attention here knows that (a) I don't think a forum reader has ever reacted negatively to another persons good fortune and (b) op's "fortune" while nice is nowhere near the most enviable on this site.

Back on topic, what is this $25k?  Is it really a dividend payment and if so from what?  Is it an annuity?  Is it just the dividend or was that just a roundabout way of telling us how much liquid cash you have access to?

I ask because a promise of $25k dividends from say a family business that might fall on hard times is very different from a guaranteed annuity.

[the fixer]

+1 Chiron.

DCook, as others have said your first priority is to lock in your financial security, since it sounds like those dividends could stop flowing at any time. The MMM blog will teach you how to do that, it's not hard with your income/expenses. It will only take you a few years if everything goes well. If those dividends keep coming after that, you'll basically be FI twice over: that's indisputably rich, no matter what everyone else thinks. Even if you had no job income, you'd have a 50% savings rate unless you come up with something to do with all that extra cash.

This is where my earlier post was coming from: it's not too early to think about this, and it may help you decide how/where you want to be investing in the short term.

[DCook2257]

Back on topic, what is this $25k?  Is it really a dividend payment and if so from what?  Is it an annuity?  Is it just the dividend or was that just a roundabout way of telling us how much liquid cash you have access to?

I ask because a promise of $25k dividends from say a family business that might fall on hard times is very different from a guaranteed annuity.

Dragoncar, the $25k annually comes in the form of dividend payouts from a family company. I should mention we also have the option of selling all of our shares for about $400k, although this is HEAVILY frowned upon by family. I will probably get some backlash for not mentioning this earlier, but cashing out was never really an option in my mind since I would like to respect the wishes of her family to maintain interest in the business. Maybe you have some more insight here given that the dividends could run out if the company goes OOB?

[Chiron]

If the dividend comes from shares you own in a family business, then not only will it completely stop if the family business goes under, but it would probably stop way before then as the governing body would cut off the spigot to shareholders to keep the business running.  Also, how do you know you could sell your shares for $400k right now?  Is the company in which your wife owns stock publicly traded?  Do you hold a put right in the shares?  If it is not publicly traded and there is not some other arrangement, it's best to treat those shares as completely illiquid and the dividend income coming from them subject to the judgment, business strategy and whims of the company's governing body.

[CommonCents]

Our goal is to build our nestegg big enough so that if we have kids in a few years, she will be able to be a full time mother and I will be able to do things I really care about, which may produce substantially lower income (I foresee our combined annual income dropping to $50k in a few years if we follow this path).

Good to know that taking care of your children won't be something you really care about. Might want to share this sentiment with your future wife so she knows what she's getting into.

Wow, the wolves have come out!  That was a very unfair inference of the OP's sentence.

Why so hard on the OP everyone?  He feels like he has a very good financial situation, and guess what?  He does!  Oh, not as good as the top posters on these forums, but better than 99% of the billions of other people in the world.  He also seems genuinely interested in learning the best way to proceed.

To the OP:

1) Don't worry about a prenup.  It's your future wife that needs one, not you.  If the family money is conditioned on there being a prenup in place, that is something she and her family should take care of.  However, do make sure you know what it says and its implications if she asks you to sign one.

2) Just by coming on the forum and asking questions, you're off to a good start.  Don't let the negative posters dissuade you.  Continue to read, learn, and consider the advice of people in forums like this one (and be wary of advice coming from people with a monetary interest in your heeding their advice).

3) Agree with the other posters not to treat the in-law money as a stable source of future income.  However, still be sure to invest it wisely and tax-efficiently.

Good luck!

I agree that was a harsh, unnecessary post.  That said, the reason I commented above on the tone was for reasons now deleted from his post.  OP edited it and removed commentary along the lines of whether people would be jealous of him, etc. that seemed bragging and unnecessarily provocative.  His title still stayed the same though, and is in that same vein - "Marrying a rich girl..." rather than "Help with family dividend income" or something more specific to his actual question.  The edited post removes much of this.  Now, this all said, I'm in danger of straying on the hierarchy of whatsit that the mods post about, but I just wanted to explain to clarify (and defend) what I was talking about as more recent readers of the edited post would not understand.

To another poster that said a prenup is to protect her, that's inaccurate.  You can draft it to plan ahead and protect the rights of both parties.  For example, if they sock away this money and invest it, and he later relies on this stache to quit his job for them to stay around the house and help with kids, he might want to have in writing how the money will be treated if they then get divorced.

[AlanStache]

+1 on all Chiron has said.

Here's hoping the dividend lasts for ever, but most all here would advice you to plain a little more conservatively.

So your SO is getting a 6% yield from the shares?  That is definitely on the good side these days :-)  And sounds like you should not offend family by selling the shares without a VERY good reason.

If the 25k comes once per year you may want to look at short term SAFE investments (CD's) for it so you can make quarterly sp500 index fund perchances (or whatever) to ovoid the chance of buying near a peak and do a bit more dollar cost averaging.  Food for thought, read, read, read, and workout what you are comfortable with doing.  Ovoid lisioning to people selling you something; always understand how the person talking is trying to get getting paid out of your pocket.

Some of your education will also be seeing how you react when there is a bad day in the market and you lose 5k, I hope you can learn to live with the bad days knowing that long term the market has/should/will go up.

[DCook2257]

So your SO is getting a 6% yield from the shares?  That is definitely on the good side these days :-)

If the 25k comes once per year you may want to look at short term SAFE investments (CD's) for it so you can make quarterly sp500 index fund purchases (or whatever) to avoid the chance of buying near a peak and do a bit more dollar cost averaging.

Thanks to everyone so far, this is starting to make sense. AlanStache, I like your idea about combining short-term CD investment with dollar cost averaging. Maybe you can offer more insight here.

The 25k dividend actually comes in quarterly payments of about 6-7k. Blending this income with our 75k in cash savings available for investing, how would you time the allocation of starting with short-term CDs to eventually get all the money into index funds via dollar cost averaging?

[AlanStache]

I am sorry to say I have never had your problem of having to get into the market with a large-ish pile of cash :-)  But I would think you would want to be "all in" at your target allocations one year out...  never had to deal with this...  or maybe half now and half in 6 months?

As for the ongoing dividend I personally would not have a problem putting 6-7k into the market on any given day four times per year, especially since that will probably be divided between a few etf's to maintain your target allocation percents.  (Think long and hard before buying a mutual fund over and etf, especially about the fees.)  Without doing the math 3k in a CD for 3 months will get you about 8$ profit.

Also you will need to get use to having less cash on hand and every two weeks when you two get paid transferring money to the brokerage account and investing it according to your target allocations.  Dont get smart and try to time the market, but think twice before trying to catch a falling knife.  You are a big boy do your home work.