Author Topic: Where to put money for a big want 6 years out  (Read 2709 times)

AnnieO

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Where to put money for a big want 6 years out
« on: June 07, 2015, 10:59:19 AM »
Single lady, 36 years old, no children, one dog, living and working abroad.  Planning to retire to the U.S. but currently loving my career so much I can't imagine wanting to retire early. 

However, definitely want to achieve financial independence for peace-of-mind and to allow for all the little ifs in life -- What if I don't always love my job? What if my job doesn't always love me? What if I get into a relationship with someone who isn't financially independent? What if I decide I want to adopt or wind up caring for a godchild? What if I want to pay for college for hypothetical nieces or nephews? What if I suddenly become a crazy cat lady and ABSOLUTELY MUST adopt 1,000 cats? 

But these are very fuzzy ifs and I don't thing any of them are likely.  The only thing I anticipating wanting to spend money on, other than retirement in 20-30 years, is a cabin.  Because I live/work abroad, I don't have a home base.  I need one mentally (not my parents's basement, I'm an adult) and I don't want to being paying for hotels for a month a year spent in the U.S.  I own the land the cabin would sit on (inherited -- no loan) and anticipate spending $100 to $200k on construction and site work.  I want to finance with cash since I won't be able to rent it out (HOA rules).  My siblings can't help with the mortgage but they can help with maintenance (they are strong and able bodied) and ongoing expenses (utilities, taxes, HOA dues) and will use the cabin while I am gone, so it won't be vacant.

Currently Financial Status
* Good, secure career and job I plan to retire out of in 20 to 30 years -- base salary is $83k but depending on where I am working I often make more.
* Own a home I plan to retire to, currently rented out -- rent does not quite paying all monthly expenses but will eventually, loan is $200k balance at 5% and I've investigated refi options and they are not advantageous at this point. 
* No consumer debts, car loans or student loads.
* No indication I'll become financially responsible for anyone else (parents are FI, etc).
* 401k balance of about $85k -- building quickly now that I am earning and saving more than earlier in my career.
* ROTH IRA balance of $11k -- only two years into this.
* Good pension on top of 401k and ROTH -- will need to work at 18 years more to take full advantage of this and I plan to do so -- will pay out at 2% for every year at this job, likely 20-30, so 40% to 60% of ending salary.
* Good safe car, five years old, and $10,000 in high-yield savings to replace it when the time comes or make major repairs -- due to import restrictions and requirement of job to move from country to country, I do have to keep "newer" cars that other Mustachians, and yes, I am required by job to own a car.
* $15,000 in high-yield savings for un-budgeted expenses -- mainly this would be a major problem with the house, employer would offer a 0% salary advance for major medical emergencies, etc.
* $10,000 in Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) -- saving for the cabin or other major "If"
* $20,000 in high-yield savings account -- saving for the cabin or other major "If"

Current Priorities
1. Maxing out $18k limit on 401k and collecting employer's match
2. Maxing out Vanguard ROTH IRA at $5,500
3. Making extra payments on home loan to increase equity and pay off debt ahead of schedule, about 10 years from now
4. Anticipate saving about $10k to $30k per year for cabin or other major "If", depending on where I go for work

So, I have $30,000 saved for the cabin, and obviously it will take me a while to get to $100 or $200k, at least 6 years.  Should another big "If" present itself in the meantime, I could easily change course and use this money for that.  The question is... where do I keep this money? Currently $10k is in VTSAX and $20k in high-yield savings.  Right now the VTSAX is only doing a little better than the high-yield savings, although it goes up and down a lot. 

Questions for you:
1. Should I move it all to VTSAX? Somewhere else? Split it up? 
2. I'm doing all I can for retirement on 401K, ROTH IRA and pension, and paying off house I plan to live in early, by the calculations I'm going to have more than enough... but is there something else you think I should be doing?
3. Should I be using all this money to pay off my mortgage on the house (rental now, future primary residence) faster so this becomes a money maker sooner?  I'm already making extra payments and have about 10 yrs left on the loan if I continue to do so at same rate.

Thanks!


Chrissy

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Re: Where to put money for a big want 6 years out
« Reply #1 on: June 07, 2015, 01:37:56 PM »
The house will probably take a year to build, so put the $30k into VTSAX, and pay it out last.  It will have 7 years to grow.  Do the same with next year's house savings too.  After that, maybe 50/50 bond fund & VTSAX for a couple of years, and the last 2 years, cash.

Sounds like you're doing everything right.

So, the rent on the house doesn't cover the expenses... BUT has the house appreciated enough to make up the difference?

AnnieO

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Re: Where to put money for a big want 6 years out
« Reply #2 on: June 07, 2015, 03:51:50 PM »
Thanks. Very helpful. Hadn't thought about bonds.

I bought the house in 2007 for $275k with an 80/20 and paid off the 20 over the first three years, and refied the 80 in 2009 for a lower, fixed rate.  If we go by Zillow it's now worth $214k (went down to $200k and is now going up steadily).  I suspect Zillow is low, but right now I'm at about 94% LTV.  I'm feeding it $229/mo plus maintenance costs (so far low, the house is in good shape).  I'm paying down the principle with extra payments, but not using those payments to lower my monthly bill, so until the rent goes up, I won't break even.  Given that I love this house and want to go back to living in it when I retire, I see no reason to sell. 

Bob W

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Re: Where to put money for a big want 6 years out
« Reply #3 on: June 07, 2015, 05:35:18 PM »
Sell the house.  Why would you keep feeding it?

AnnieO

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Re: Where to put money for a big want 6 years out
« Reply #4 on: June 08, 2015, 12:10:29 AM »
Because appreciation in my community has always outpaced my interest rates over the long haul.  There was a rough patch there in '09 and again in '12 and it has taken awhile for home prices to recover, but in the past 30 days it has appreciated by $4,000 and my little bit of equity, if cashed out, plus increased monthly savings, would not have done that well.  And, as previously stated, this is the house I want to live in when I retire.  Also, should I leave my current job for any reason, this would be the location where I would most likely find the best job/best life/lowest cost of living.

Bob W

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Re: Where to put money for a big want 6 years out
« Reply #5 on: June 08, 2015, 07:15:27 AM »
My bad thought you were going to live in cabin.