Author Topic: What to do next?  (Read 7027 times)

jeddy0120

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What to do next?
« on: November 06, 2013, 10:42:04 AM »
Hi fellow mustachians!

Long time reader, first post. 

I can say that as of Friday my wife and I will be debt free other than our mortgage.  Over the last year we have paid 28k off in SL debt which I think is pretty badass. So what to do next? I am 32 and my wife is 30 and we are behind the curve significantly IMO. We have a combined gross salary of about 130k.  We also have roughly 45k in a combined 401k stash, I know not good. We would like to have kids sometime in the near future but I am trying to put that off as long as we can until we get in better shape.

My wife no longer makes contributions to her 401k because she has a state gig and money gets pulled out for her pension assuming that she stays there for 10 years.  If she ends up leaving, she will get the money back.  I just accepted a new job and my employer does not offer a 401k, only an IRA. Both of our 401ks are with the same investment company so I dont see a need to change that.

My question now is, how should I approach our new found freedom? Other than my plan to max out my IRA we need to start building a stash. We have been running lean paying off these loans, just leaving 1k in savings for emergencies.  I would like to grow that over the next year to 30k.  What is acceptable level of cash to have laying around before investing in Index Funds or REITs? Here is a list of our monthly expenses off the top of my head from my budget at home:

Mortgage:1,500 (includes taxes/ins)
Sewer:35
Water:65
Food:500
Electricity:70
Internet:73
Phones:140
Gas:150
Car Ins:186 3 cars.....I know this is bad. I am a gearhead what can I say. 
Disposable allowance:400
Oil heat:125

Thanks guys!

Jon




Mega

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Re: What to do next?
« Reply #1 on: November 06, 2013, 10:55:13 AM »
What is your mortgage loan value and rate?

I don't see any budget item for savings. Are you only saving what is left at the end of the month, or do you put a set amount away from each paycheck?

Lans Holman

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Re: What to do next?
« Reply #2 on: November 06, 2013, 11:00:42 AM »
If you don't have kids, don't have any other debt, and have reasonably stable jobs, there's no way you need 30k in an emergency fund.  You're going to have plenty of money to invest that won't even be in tax-advantaged accounts, so you can access that in an emergency. 

jeddy0120

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Re: What to do next?
« Reply #3 on: November 06, 2013, 11:06:19 AM »
What is your mortgage loan value and rate?

I don't see any budget item for savings. Are you only saving what is left at the end of the month, or do you put a set amount away from each paycheck?

Good point, at the current moment zero.  Basically living paycheck to paycheck to throw as much cash to the loans as possible. Other than the 1k thats in savings.

jeddy0120

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Re: What to do next?
« Reply #4 on: November 06, 2013, 11:10:29 AM »
If you don't have kids, don't have any other debt, and have reasonably stable jobs, there's no way you need 30k in an emergency fund.  You're going to have plenty of money to invest that won't even be in tax-advantaged accounts, so you can access that in an emergency.

Could you elaborate what you mean by this comment? "You're going to have plenty of money to invest that won't even be in tax-advantaged accounts, so you can access that in an emergency."

Lans Holman

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Re: What to do next?
« Reply #5 on: November 06, 2013, 11:15:49 AM »
If you don't have kids, don't have any other debt, and have reasonably stable jobs, there's no way you need 30k in an emergency fund.  You're going to have plenty of money to invest that won't even be in tax-advantaged accounts, so you can access that in an emergency.

Could you elaborate what you mean by this comment? "You're going to have plenty of money to invest that won't even be in tax-advantaged accounts, so you can access that in an emergency."

If you were going to be putting all of your new-found potential savings into 401ks or IRAs, some people would feel uncomfortable with that because they wouldn't want to take the tax hit for an early withdrawal in the case of an emergency.  But if you don't have access to a 401k and can only put 11k a year into IRAs, you're going to have plenty of other money just going into index funds, REITs, whatever you settle on.  If one of you were to lose your job and you needed some money to get you through, you could just access those.

frugaldrummer

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Re: What to do next?
« Reply #6 on: November 06, 2013, 11:21:02 AM »
Quote
We would like to have kids sometime in the near future but I am trying to put that off as long as we can until we get in better shape.

Don't put it off.

Fertility declines and risk of chromosomal abnormalities rises with age. 
http://downsyndrome.about.com/od/diagnosingdownsyndrome/a/Matagechart.htm

If you are serious about wanting children, I would caution you against waiting at your age.  You might encounter fertility, problems, or it simply might take a year or two to get pregnant, there might be a miscarriage (or two - it's common).

jfer_rose

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Re: What to do next?
« Reply #7 on: November 06, 2013, 11:29:54 AM »
If you don't have kids, don't have any other debt, and have reasonably stable jobs, there's no way you need 30k in an emergency fund.  You're going to have plenty of money to invest that won't even be in tax-advantaged accounts, so you can access that in an emergency.

Could you elaborate what you mean by this comment? "You're going to have plenty of money to invest that won't even be in tax-advantaged accounts, so you can access that in an emergency."
But if you don't have access to a 401k and can only put 11k a year into IRAs, you're going to have plenty of other money just going into index funds, REITs, whatever you settle on. 

I think we need to offer a caveat to Lans Holman's advice, because the contribution limit varies depending on the type of IRA your employer offers.  Traditional and Roth IRAs limit your annual contributions to $5,500 per year. But if the employer is offering a Simple IRA, the annual contribution limit is higher ($12,000).

jeddy0120

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Re: What to do next?
« Reply #8 on: November 06, 2013, 11:52:04 AM »
loan value is 212k @ 3.875.  We dont plan on staying in the house, so I don't necc. see a point to paying down the value other than getting rid of the PMI that we pay.

jeddy0120

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Re: What to do next?
« Reply #9 on: November 06, 2013, 11:53:03 AM »
Quote
If you were going to be putting all of your new-found potential savings into 401ks or IRAs, some people would feel uncomfortable with that because they wouldn't want to take the tax hit for an early withdrawal in the case of an emergency.  But if you don't have access to a 401k and can only put 11k a year into IRAs, you're going to have plenty of other money just going into index funds, REITs, whatever you settle on.  If one of you were to lose your job and you needed some money to get you through, you could just access those.


Ahhhh ok I see what you mean now.  Thank you for the clarification.
« Last Edit: November 06, 2013, 11:58:30 AM by jeddy0120 »

jeddy0120

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Re: What to do next?
« Reply #10 on: November 06, 2013, 11:56:58 AM »
Quote
We would like to have kids sometime in the near future but I am trying to put that off as long as we can until we get in better shape.

Don't put it off.

Fertility declines and risk of chromosomal abnormalities rises with age. 
http://downsyndrome.about.com/od/diagnosingdownsyndrome/a/Matagechart.htm

If you are serious about wanting children, I would caution you against waiting at your age.  You might encounter fertility, problems, or it simply might take a year or two to get pregnant, there might be a miscarriage (or two - it's common).

Agreed, we know the risks involved with having kids at our age.  I find it hard to think about having a kid with having such little savings.  I wouldnt mind waiting another 3 years, that would put me @ 35 and my wife @ 33.

Guizmo

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Re: What to do next?
« Reply #11 on: November 06, 2013, 01:09:58 PM »
Don't worry, my mum had me at 39. I turned out fine. Only problem is my mustache (real one) doesn't want to grow!

oldtoyota

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Re: What to do next?
« Reply #12 on: November 06, 2013, 01:16:02 PM »
Quote
We would like to have kids sometime in the near future but I am trying to put that off as long as we can until we get in better shape.

Don't put it off.

Fertility declines and risk of chromosomal abnormalities rises with age. 
http://downsyndrome.about.com/od/diagnosingdownsyndrome/a/Matagechart.htm

If you are serious about wanting children, I would caution you against waiting at your age.  You might encounter fertility, problems, or it simply might take a year or two to get pregnant, there might be a miscarriage (or two - it's common).

Agreed, we know the risks involved with having kids at our age.  I find it hard to think about having a kid with having such little savings.  I wouldnt mind waiting another 3 years, that would put me @ 35 and my wife @ 33.

If your wife is 35 at the age of birth, she'll be considered of "advanced maternal age." That can set her up for a lot of interventions she may not want or maybe she won't care. Either way, it's worth reading about to see if the risks (possible diabetes, possible high BP) are worth it.

http://www.mayoclinic.com/health/pregnancy/PR00115

Are you looking for feedback on your expenses? What is the $400 allowance for? We have $40-50 for the month for two of us. The phone charges can be cut to $20 if you sign up for something like AirVoice (check IP Daley's Communications Superguide on this forum for more information). The electric bill could certainly come down by at least $20, if not more. Others here would say a lot more.

I don't know much about how the pensions work. If she leaves before the 10 years are up, then does she get her money back + the earnings from the money? If she doesn't get the earnings back, then the money would have lost value due to inflation.

If you do not have a 401K and you are maxing out the IRA, then you might want to look into saving into a taxable account. It is a shame that people without access to a 401K via their company can't put money away on their own. Darn the US!





« Last Edit: November 06, 2013, 01:22:28 PM by oldtoyota »

dadof4

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Re: What to do next?
« Reply #13 on: November 06, 2013, 01:17:32 PM »
Agreed, we know the risks involved with having kids at our age.  I find it hard to think about having a kid with having such little savings.  I wouldnt mind waiting another 3 years, that would put me @ 35 and my wife @ 33.
In about 9 months you will save at least 30k, that should be enough security... Just sayin'

It is very anecdotal, but my first 2 kids (conceived when I was 26 and 28)  had far fewer health issues than the last two kids (at 32 and 34).

happy

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Re: What to do next?
« Reply #14 on: November 06, 2013, 03:36:11 PM »
Don't want to turn this into another fertility thread, but you should not risk potential issues with reproduction for the sake of a few dollars. In general you're right, get yourself on a firm financial footing first, but the time to do that was your previous decade, which you didn't do. So don't try to make up on missed time and mess up the childbearing as a consequence.

When you say "when my wife is 33" do you mean you want the kid in the cot then, or thats when you'll start trying?

Even with younger folk, very few people fall pregnant the first month they try, and then you have 9 months gestation. So you probably have a lead time of a year unless you are a very fertile couple or plain lucky. The old joke of the 16 year old who falls pregnant and says "We only did it once" either has a poor memory or is exceptionally unlucky.

Age 30-35 are those last precious years of good fertility for a woman.  After that everything is harder and riskier. Don't waste them.

jeddy0120

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Re: What to do next?
« Reply #15 on: November 07, 2013, 08:43:32 AM »
Quote
We would like to have kids sometime in the near future but I am trying to put that off as long as we can until we get in better shape.

Don't put it off.

Fertility declines and risk of chromosomal abnormalities rises with age. 
http://downsyndrome.about.com/od/diagnosingdownsyndrome/a/Matagechart.htm

If you are serious about wanting children, I would caution you against waiting at your age.  You might encounter fertility, problems, or it simply might take a year or two to get pregnant, there might be a miscarriage (or two - it's common).

Agreed, we know the risks involved with having kids at our age.  I find it hard to think about having a kid with having such little savings.  I wouldnt mind waiting another 3 years, that would put me @ 35 and my wife @ 33.

If your wife is 35 at the age of birth, she'll be considered of "advanced maternal age." That can set her up for a lot of interventions she may not want or maybe she won't care. Either way, it's worth reading about to see if the risks (possible diabetes, possible high BP) are worth it.

http://www.mayoclinic.com/health/pregnancy/PR00115

Are you looking for feedback on your expenses? What is the $400 allowance for? We have $40-50 for the month for two of us. The phone charges can be cut to $20 if you sign up for something like AirVoice (check IP Daley's Communications Superguide on this forum for more information). The electric bill could certainly come down by at least $20, if not more. Others here would say a lot more.

I don't know much about how the pensions work. If she leaves before the 10 years are up, then does she get her money back + the earnings from the money? If she doesn't get the earnings back, then the money would have lost value due to inflation.

If you do not have a 401K and you are maxing out the IRA, then you might want to look into saving into a taxable account. It is a shame that people without access to a 401K via their company can't put money away on their own. Darn the US!

Yea, I need to get the elec bill down as you mentioned, I have been looking into the LED pot lights because we have a bunch in the house.

400 dollars is 50 dollars a week in spending money for both of us.

Good point about the pension that's something I need to ask...thanks.

Yea not being able to contribute to a 401k without an employer is def a bummer.

jeddy0120

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Re: What to do next?
« Reply #16 on: November 07, 2013, 08:45:19 AM »
Don't want to turn this into another fertility thread, but you should not risk potential issues with reproduction for the sake of a few dollars. In general you're right, get yourself on a firm financial footing first, but the time to do that was your previous decade, which you didn't do. So don't try to make up on missed time and mess up the childbearing as a consequence.

When you say "when my wife is 33" do you mean you want the kid in the cot then, or thats when you'll start trying?

Even with younger folk, very few people fall pregnant the first month they try, and then you have 9 months gestation. So you probably have a lead time of a year unless you are a very fertile couple or plain lucky. The old joke of the 16 year old who falls pregnant and says "We only did it once" either has a poor memory or is exceptionally unlucky.

Age 30-35 are those last precious years of good fertility for a woman.  After that everything is harder and riskier. Don't waste them.

Hoping to have the kid in the cot by 33.

Exflyboy

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Re: What to do next?
« Reply #17 on: November 07, 2013, 10:02:34 AM »
I'd start paying off the house to get rid of the PMI.

Its a guranteed 3.875% but its MORE than that. A house is the roof over your head.

I'd take that $400a month and pay off the mortgage with it.. Can you get a renter?... Do the same with that money.

Put it this way if you doubled your payments you'd be done in about 7 years.

Even if you move say in 10 years.. you might have 200k in equity, not to be sniffed at!

Then you'd have another $1500 a month to save at roughly 9% on a stock ETF.

It will add up fast.

All bets are off if you have kids of course..:)

jeddy0120

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Re: What to do next?
« Reply #18 on: November 07, 2013, 01:36:45 PM »
I'd start paying off the house to get rid of the PMI.

Its a guranteed 3.875% but its MORE than that. A house is the roof over your head.

I'd take that $400a month and pay off the mortgage with it.. Can you get a renter?... Do the same with that money.

Put it this way if you doubled your payments you'd be done in about 7 years.

Even if you move say in 10 years.. you might have 200k in equity, not to be sniffed at!

Then you'd have another $1500 a month to save at roughly 9% on a stock ETF.

It will add up fast.

All bets are off if you have kids of course..:)

Good point about the PMI.  We could pay that down fairly easily but I am not sure I see the point given we think we would like to sell in the next 3 yrs or so.  Is it really worth it?

Exflyboy

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Re: What to do next?
« Reply #19 on: November 07, 2013, 05:47:55 PM »
Sure its worth it.. Your building up equity at nearly 4% risk free.

You won't get a risk free rate of return like that anywhere else.

eman resu

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Re: What to do next?
« Reply #20 on: November 07, 2013, 06:45:03 PM »
Hi Jon - Congrats on nixing the student loans.  Sounds like you are in great shape. (My wife and I are a little older and little farther behind, so I might just be trying to make myself feel better...)

I'd go after the PMI hard.  It's money down a hole.  A couple ideas with that:

1) Scare up the PMI disclosure from when you closed your loan and make sure you are on top of requesting cancellation as soon as possible. Don't rely on your lender. 

2) If your lender makes you escrow for taxes/insurances, check out the "buffer" they required. Usually 2 months on each item being reserved.  See of they'll lower that to one month... or none (you're a good customer, no?)... and then throw the excess at the principal. 

I'm in NY and my wife (state emp) has an embarrassment of 403(b) and 457 plan options in addition to her pension plan.  Your spouse doesn't have any retirement account options other than paying into the applicable pension system?

Good luck on future plans!
 




Stache In Training

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Re: What to do next?
« Reply #21 on: November 07, 2013, 09:54:39 PM »
I agree with most of the above advice, but I would recommend to not neglect your emergency fund.  It's great peace of mind.  You probably don't have to wait until you get it up to 30k until you start investing, but just make sure you are putting some money towards it too.

Also, have you gone the online banking route yet?  It makes bill pay, and investing a lot quicker, in my opinion.  But either way, the interest rate is much higher than any local bank or credit union I could find.  Like 4 times as high.  Mine's .75%, as opposed to .15%.  It's still crappy, but the best place for today's market, for getting any sort of return on your cash (emergency fund)  Here's my Capital One 360 refer a friend link:https://r.capitalone360.com/fvMaBF6sbX.  If you use it, you should get $20, and I'll get $20. (full disclosure)  Don't feel like I'm pushing you towards my link, though.  If you look on the MMM blog, you'll probably find a better sign up bonus than that. 

Either way, use a sign up bonus, because hey, free money!