Author Topic: Setting Priorities for Unexpected Raises  (Read 1748 times)

HappyHoya

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Setting Priorities for Unexpected Raises
« on: June 15, 2016, 12:52:17 PM »
A few months ago, my family was plugging along making steady progress on our goals, but not getting anywhere quickly. We've paid off a ton of debt, bought a house with an affordable monthly payment in a HCOL area, and got our expenses to a place where our lives are rich without spending a lot of money. We were in great shape but not seriously thinking early retirement was in the cards for us based on our ages and starting off our adult lives with lots of student loan debt and medical expenses. We were (and are) happy to have overcome some pretty tough stuff to just live comfortably and without a lot of financial worries. In the past few months, both earners received raises, one of which was totally unexpected. We have about 2.5k more each month than we have planned for in our current budget. Although both raises are well-deserved, we do not feel any need to inflate our day-to-day lifestyle. We have a robust emergency fund and max out retirement accounts. We are saving this unexpected money with the intentions of investing some of it in a Vanguard lifecycle account or Betterment. We have some repairs and updates  we could do on our house that could save us money in the long term, but which we've done without while we didn't have cash upfront to responsibly consider these options. One of us may take some time off work next year, so while I don't think it makes sense to keep too much cash around, I also don't want to lock up everything in a way that's too illiquid. Any thoughts? I'm mostly curious if it would be reckless to take this opportunity to do home repairs (~10k worth) that we wouldn't otherwise have the opportunity to do, and what amounts we should invest verses keep around. I don't like keeping the money sitting around without a plan but I don't want to act impulsively, either--please help!

rubybeth

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Re: Setting Priorities for Unexpected Raises
« Reply #1 on: June 15, 2016, 02:36:47 PM »
I would suggest using a taxable investment account for part of it each month. Vanguard or Betterment--depends on what you prefer, I guess.

I'd also probably do the home improvements, too.

The major thing you'll want to avoid is "feeling rich," and with that much extra cash flow, it could happen. So getting into the habit of getting it into investments or a separate home repair fund (even if that's just a separate savings/money market account) would be important to me.

As for how much to invest vs. keep liquid in savings vs. spending on home improvements, I don't think there's some magic number. You could just do 1/3 to each, or get the cash savings to a certain point (like having a minimum of 3 months expenses or something) and start investing when you reach that goal, or start doing the home improvements first and then save the rest.

HappyHoya

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Re: Setting Priorities for Unexpected Raises
« Reply #2 on: June 15, 2016, 03:04:52 PM »
I would suggest using a taxable investment account for part of it each month. Vanguard or Betterment--depends on what you prefer, I guess.

I'd also probably do the home improvements, too.

The major thing you'll want to avoid is "feeling rich," and with that much extra cash flow, it could happen. So getting into the habit of getting it into investments or a separate home repair fund (even if that's just a separate savings/money market account) would be important to me.

As for how much to invest vs. keep liquid in savings vs. spending on home improvements, I don't think there's some magic number. You could just do 1/3 to each, or get the cash savings to a certain point (like having a minimum of 3 months expenses or something) and start investing when you reach that goal, or start doing the home improvements first and then save the rest.

Thanks for the advice. We will probably end up doing what you mentioned with splitting it between home repairs and investments, even though that means it will take us longer to hit larger amounts towards each. We definitely do not feel rich and this feels like a windfall so part of me wanted to see big gains quickly in one area or the other, but having some of both is probably the better decision.

mozar

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Re: Setting Priorities for Unexpected Raises
« Reply #3 on: June 15, 2016, 06:41:53 PM »
"feeling rich" is a colloquial term for hedonic adaptation, not that you actually are rich people now.

Choices

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Re: Setting Priorities for Unexpected Raises
« Reply #4 on: June 16, 2016, 08:37:27 AM »
Way to go! All the options sound smart, as long as you don't go overboard on the home repairs. Expect them to cost twice as much and take three times as long as anticipated.

As for the lifecycle funds, you can probably check Bogleheads and a few other places and do your own asset allocation in index funds instead of relying on their algorhithm, but it isn't a bad fund compared to many others available.