Author Topic: Young/Dumb Mustachian, Needing Wealth Allocation Advice  (Read 4889 times)

maddiecarr

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Young/Dumb Mustachian, Needing Wealth Allocation Advice
« on: October 06, 2014, 09:25:47 AM »
Hey all,
My husband and I are brand new to these mustachian ideas...

I am looking for some advice on where to put the ~80k in our combined checking accounts in light of our 3 main financial goals.

1. He has 40k in private student loans at 3.8% interest. I would love to be free of these.
2. We are renting from my parents, and saving for a house (which we don't feel we need for just the two of us, but we think is a good idea for stability for kids)
3. We love the idea of early retirement.

-How aggressively would other mustachians pay off that student loan?
-If you were saving for a house, where would you keep your savings? (We have looked into Betterment a little bit)
-For retirement investing, he contributes 10% w/ company match to his 401k w/ Charles Schwab right now. Should we also be doing VTSAX? (any other ideas?)

Thanks for any help! :)

Ybserp

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #1 on: October 06, 2014, 10:00:50 AM »
First, I'd put $5,500 into IRAs for each of you. My IRA account are with Vanguard in the total stock market index fund (VTSMX or VTSAX depending on account balance).

My guess is a Roth IRA would be best, but you may prefer to make them be traditional IRAs instead for the tax deduction.

former player

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #2 on: October 06, 2014, 10:18:18 AM »
Some very quick thoughts -

1.  Renting from your parents sounds pretty stable to me - any reason why it won't continue to be?
2.  A decent deposit (20%?) on your house should get you a cheaper mortgage.   Go for a relatively small house on a decent lot, and while you are young and go-getting think about something you can put sweat equity into.
3.  How does your husband feel about getting rid of the student loans?  How does their 3.8% interest (is it fixed?) stack up against a potential mortgage interest rate?
4.  What is your own pension investing?  I hope you are not relying solely on your husband's.

rocksinmyhead

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #3 on: October 06, 2014, 10:21:16 AM »
hmm, the student loans are tricky. I paid mine off ASAP but my rates were higher (mostly 5%-7%, a few higher and lower), and the lowest were variable rates so I still paid them off ASAP because I am paranoid and debt-averse :) 3.8% sounds like it's right on the cusp of where it's a pretty personal decision based on how you feel about debt and how stable your income is.

I am saving for a house right now too and I just keep it in cash (Ally savings account). it kind of sucks, but since my timeline is less than 5 years I feel like it's a good choice.

how old are you guys and what's the (planned) timeline on kids?

maddiecarr

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #4 on: October 06, 2014, 11:08:09 AM »
ybserp - thanks for the input! I have a Roth IRA w/ Vanguard; not a significant investment though. I will have to see whether it makes more sense for us to do traditional or Roth.

rocksinmyhead - we are 25 and sort of thinking about next year for kids. Our friends think we are nuts, but we think we might as well go ahead while we are young and have energy and 2 sets of potential grandparents who would be excited and involved. We have stable income - but the interest rates on his loans are adjustable. Ally makes sense to me - Thanks for the input.

former player -
1. Renting from our parents is a great and stable situation. The only real pull is the fact that husband commutes 35 mi one way in DC metro area traffic. (My commute however, is an awesome 2.5 mi... husband is OK with this set-up and glad for me to have no commute, for now)
2. When we are ready to buy a house, we'll only be buying something we can put 20% down on. Couldn't agree more.
3. Husband is not bothered by the loans as much as I am. We do have stable income. They are not a fixed interest rate; I believe they are adjustable 1% a year up to a max of 8%. Obviously if the interest rate goes up, I think we would both be feeling more aggressive. Current mortgage interest rate is 4.5% for us.
4. I just started new full-time job and am trying to figure out my options. I have an old 401k w/ Fidelity from a previous job. and a Roth IRA w/ Vanguard.

Amasa

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #5 on: October 08, 2014, 01:25:07 PM »
Maybe there is some reason this would be a bad plan for you, but this is what I would do with 80k and your financial goals:

  • Pay off the loans. That would leave 40k.
  • Continue saving. 40k would be enough for a 20% down payment on a 200k house, if you wanted it, and if you want a pricier house, you can keep saving until you have a large enough down payment to get the house you want.

Does that make sense? I also use Ally for my cash savings. It's a good short-term savings pool with a non-zero interest rate. Of course, I can understand how someone might not want to pay off the whole loan at once, but in my mind, that money would be doing much more good paying off even a loan with a small-ish interest rate than sitting in a lower interest rate savings account. Putting some of that money into IRAs or your 401ks is a good idea as well.

maddiecarr

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #6 on: October 11, 2014, 05:42:41 AM »
Amasa - I was wondering if anyone would say that.

It is definitely an option... and I can't think of any particular reason it would be a bad idea... just reduced cash/flexibility. But you're completely right about the interest on the loan vs just sitting in savings.

Husband resists the idea a little bit. Not sure why... we have no other debt.

aschmidt2930

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #7 on: October 11, 2014, 11:42:20 AM »
Serious props on saving that much in cash at such a young age.  I think you already have a list of good options, but I would personally focus on the loans.  If you don't throw a lump sum at them you're going to rack up nearly 1500 of interest this year, and the balance will likely hurt your mortgage rate a little.  It sounds like a house is something you really want in the near-term, if that's the case I would keep the other 40k on hand, unless you're close to getting in a lower tax bracket, then dump what you need to into an IRA.

Calvawt

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #8 on: October 11, 2014, 11:57:00 AM »
I would pay off the loans as well.  There is something about clicking submit on the last payment that is very satisfying.

I also agree with Amasa on saving the rest until you reach the 20% down payment you want.

mozar

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #9 on: October 11, 2014, 12:07:47 PM »
1. Pay off the loans
2. Have the kids
3. When the oldest is 6 think about buying a house with the school system you want.

You didn't say where your husband works but if you are looking to move closer to DC you're going to have a hard time finding a single family house under 200k inside the beltway.
Also being able to have childcare near your house, near your parents, and near your work is a blessing. Especially if your parents can help. I don't think that's worth giving up until your kids are older.

MooreBonds

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #10 on: October 11, 2014, 06:49:07 PM »
My alternate view:

Student Loan - assuming it's fixed, I'd leave that alone and pay the minimum. You'll likely never see rates this low again for the next 20-30 years.

Housing - Look around for a house that you can do a little sweat equity in (as another poster suggested). You have a good sum for a down payment, and 20% will avoid PMI fees. Also, as with the student loans, you'll likely never see rates this low again for the next 20-30 years on a mortgage. Getting the lowest rate on a mortgage for a $150k-$200k home has HUGE savings over a 15 or 30 year term compared to paying off the student loans and waiting on buying a house, with a likely higher mortgage rate. (PenFed has great rates on mortgages)

IRAs - I would also fund that, assuming you can find a $200k house ($40k downpayment, leaving $40k split between an emergency fund and IRA contributions).

mozar

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #11 on: October 11, 2014, 07:39:44 PM »
A single family house near DC for 150k...HAHAHAHAHAHAHAHAHAHAHAHA.

surfhb

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Re: Young/Dumb Mustachian, Needing Wealth Allocation Advice
« Reply #12 on: October 11, 2014, 07:47:40 PM »
1. Pay off the loans
2. Have the kids
3. When the oldest is 6 think about buying a house with the school system you want.

You didn't say where your husband works but if you are looking to move closer to DC you're going to have a hard time finding a single family house under 200k inside the beltway.
Also being able to have childcare near your house, near your parents, and near your work is a blessing. Especially if your parents can help. I don't think that's worth giving up until your kids are older.

Touché!   

Here is your answer right here!!!   :).    Max you're retirement vehicles and buy at another time.....Jeesh you're only 25. Just kids :)

Good job
« Last Edit: October 11, 2014, 07:55:30 PM by surfhb »