I am trying to come up with a savings plan for my paycheck. I recently paid off my mortgage, and I want to figure out the best way to put my new found "wealth" to good use.
I am contributing 23% of my paycheck to 401k, which puts me very close to the limit. I have also maximized my Roth IRA contributions.
My take home pay is $3525.39. Now that we do not have a mortgage, we will be able to live on my wife's paycheck. So I am not quite sure how to put my paycheck to good use, considering I have maximized my 401k and Roth IRA.
Here is my networth situation -
Checking - $8,800.41
Checking - $978.12
Checking - $600.00
Savings - $27,084.85
401k - $28,912.50
Roth IRA - $20,285.37
Brokerage - $4,680.47
Cash - $107.00
Overseas - $413.93
Total - $91,862.65
Given all this, what is the best use for my $3500? I don't know what my overall goal in life is. I guess retiring with dignity, not being a burden to my family, are the top goals. I would also like to to $1M.
Any suggestions will be much appreciated.
Thanks.
You're very heavy in cash (checking, savings, etc.). I'm not sure if that's fear of the market (a different issue on which there are many posts), or an emergency fund of some kind. If the latter, I recommend getting a home equity line of credit (HELOC) and then moving almost all of your cash to the investment of your choice.
That's what I did when I was almost done paying off my mortgage, and it worked great. I got the HELOC through Bank of America, where it was free so long as I kept it open 2 years. I set it up as an emergency fund (I've never used it), because the money is instantly available to my bank account. That allowed me to move all cash to my Vanguard account. If I need to buy something, I have credit cards that I pay off each month, or a HELOC if I need something more significant.
While it is possible that a HELOC could be revoked, I consider it highly unlikely for a paid-off house where you're looking at the possibility of borrowing $10k for some emergency that you'd then pay off in a few paychecks. The interest rate is insignificant when you're talking about 2-3 months loans (which is effectively what your emergency fund is).
I then set up an automatic investment at Vanguard that pulls the amount of money I want to invest from my paycheck every 2 weeks a few days after the paycheck hits my bank account. If a bigger expense comes up, I just manually cancel the investment for that paycheck. I've only had to do that a couple of times in the last 2 years. Occasionally, when some extra builds up in the bank accounts, I make an additional investment.
All of that makes the finances very simple and automated so you're not having to think about where money is and whether to invest.
I also recommend maxing your 401(k) before any non-retirement accounts. Getting to invest pre-tax is worth the benefit.
My $0.02. Good luck.
P.S. Forgot to add that I got this from the MMM post on "Springy Debt," which was the first MMM post I read and which got me hooked on Mustachianism!