Author Topic: Where to put money for uncertain time horizon?  (Read 587 times)

startingsmall

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Where to put money for uncertain time horizon?
« on: April 22, 2019, 06:11:07 PM »
We already max my 401k, Roth IRAs for husband & myself, HSA, and an SEP IRA for my freelance writing business. We also contribute a bit to my husband's retirement plan, but not a whole lot because church retirement plans aren't guaranteed like typical retirement accounts. (If the denomination runs into financial trouble, we could lose his money).

We own a home worth $280k and have a mortgage of about $185k @ 3.75%.
Emergency fund is $20k.
We have some taxable investments but the majority of our FIRE funds are in tax-advantaged accounts. Our current FIRE funds are at ~7x, with our total net worth (including home equity) around 9x.

So... I'm trying to decide what to do with extra money that comes in above and beyond our plan (anywhere from $5k-30k/yr, realistically). The problem is that the time horizon for when we'd use this money is REALLY uncertain.

1. We might use it in the next 1-10 years. We're considering a move from our current rural small town (which we hate) to a different area (which would probably mean a slightly more expensive home and perhaps a period of job-hunting for whichever of us doesn't get the job offer that permits the move). I like the idea of having money that we could use to make a larger downpayment on our next home, allowing us to lower our monthly payments for more flexibility as we change jobs.

2. We might leave it alone until FIRE, which is probably 10-15 years away for us (depending on what happens with jobs/relocation/etc).

The time uncertainty is making it tough for me to decide. If I knew we were moving in 3 years, I'd probably put it in savings. If I knew we wouldn't use it until 10-15 years from now, I'd put it in taxable investments.

Do I split it between savings and taxable investments?
Do I just put it in taxable accounts and accept that it may not make sense to withdraw it at the time we relocate (if we even DO relocate)?
Do I take the middle-of-the-road approach and use it to pay down the mortgage?  (Part of me likes the idea of having it separate from the mortgage, in case we want to close on a new home before selling the current house... but realistically, I'm probably too risk-averse to have two mortgages, so that's probably a silly concern.)

I want to set a strategy and stick with it, but I can't decide what's best in this situation.
« Last Edit: April 23, 2019, 06:49:58 AM by startingsmall »

feelingroovy

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Re: Where to put money for uncertain time horizon?
« Reply #1 on: April 22, 2019, 09:42:10 PM »
I am not sure I have a good answer for you other than don't put it into your mortgage.

I have been struggling with a similar issue and I can share my current way of thinking. Due to a recent raise we now have $2-3k a month to put toward savings/investments. We already max all the tax advantaged accounts.

My kids are in 12th and 9th grade. We have told them we would give them each enough to cover state schools for college. (Then they are on their own). So about $100k each. We have already saved just under half ($90k).

So if they both go and both need 4 years we have to come up with $110k. Should be no problem.

But it's not all needed at once. And now my oldest has decided to take a gap year. He already has a bunch of AP credit and may only need 3 years.  And I think the gap year may turn into a few. So I no longer know exactly how much we'll need and when.

For now I decided to put it into a high interest savings account. I will revisit that in a year or so once we have more info. At that point we may start putting some into a taxable vanguard account. I know it would be mathematically better to put at least some into the market now but I think I just need to build up a cushion first. I can always stick it into vanguard later if it's not needed for college.

startingsmall

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Re: Where to put money for uncertain time horizon?
« Reply #2 on: April 23, 2019, 06:37:30 AM »
We'll also (likely) have college expenses... although I feel like changes in the college finance situation are highly likely by the time our daughter graduates HS. She's in 1st grade and we currently have $25k in her 529... we contributed a bit during her first few years and now the only deposits are birthday/Christmas gifts that she receives from my parents.

There may come a point where we need to start saving more for college, but right now I think we're good with where we are. Even if we're still working when she goes to college, our income should be low enough to qualify for financial aid (husband is a pastor, I would only be doing PT freelance writing by that time).
« Last Edit: April 23, 2019, 06:51:27 AM by startingsmall »

startingsmall

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Re: Where to put money for uncertain time horizon?
« Reply #3 on: April 23, 2019, 06:46:48 AM »
Also, I see your point on the mortgage being the worst choice. I feel like it's a middle-of-the-road option in terms of returns (more than my online savings, less than the market) but it does give a significant loss in flexibility. My logic is that we'll certainly be moving at some point in the next 20 years, whether that's during our working lives or after we FIRE, so mortgage prepayment basically functions as a savings account at 3.75% interest (especially with us now taking the standard deduction and no longer deducting mortgage interest). But it does represent a loss of flexibility.

Maybe I should just stick with taxable investments for now and shift to beefing up the savings if/when a move looks more imminent?

Also, while I say that our emergency fund is $20k, we usually keep another $5-10k spread across other accounts (currently $4k in travel fund, $3k in short-term savings at our regular bank, and we always keep a $2k buffer in checking), so there's probably no good reason to increase cash savings at this time.