Author Topic: What to do with savings  (Read 1863 times)

Lulu0204

  • 5 O'Clock Shadow
  • *
  • Posts: 9
What to do with savings
« on: June 29, 2016, 11:45:22 AM »
Hello!

First post here. Thanks in advance for your advice.

OK so this is kind of shameful but - I have 150k sitting in the bank in a savings account. Just sitting there, doing nothing. This account has been increasing since I started working about 8 years ago. I shudder to think what that number could be! My question is obviously what should I be doing with this money?!

A little background - my husband and I are both maxing out our 401k. I believe we are above the income limit for a Roth IRA. We have about 170k left on our 4.25% 30 year mortgage, this being our only debt. The twist - I think I am going to quit work shortly to become a SAHM for a while. My husband makes enough to cover our living expenses with about 1k each month left over to save/invest.

Any advice?

rubybeth

  • Handlebar Stache
  • *****
  • Posts: 1402
  • Location: Midwest
Re: What to do with savings
« Reply #1 on: June 29, 2016, 11:48:39 AM »
I would suggest doing a case study because we don't know the full financial picture. Edited to delete my other stuff since it looks like you're doing some of what I mentioned. But a case study would be best: http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/
« Last Edit: June 29, 2016, 12:07:44 PM by rubybeth »

nereo

  • Senior Mustachian
  • ********
  • Posts: 10567
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: What to do with savings
« Reply #2 on: June 29, 2016, 11:57:27 AM »
Welcome lulu

You are right to wonder if that money could be put to better use, but you should not be ashamed to be in what sounds like a very good financial situation.

Now - how to put that $150k to better use...
For starters, keep whatever amount you need for an emergency fund in that savings account.  Typical advice ranges from 3-9 months worth of expenses, but it can be less or more depending on your situation (e.g. job security, tolerance for risk, potential for unplanned expenses, etc).
You mentioned you are already maxing out your 401(k)s - good job! and that think you might be above the ROTH IRA limits. A few things to check on;
For taxable accounts:
1) do you have an HSA available to you?  If so, max that out
2) use the "backdoor roth" method to contribute money to a ROTH IRA
3) if your plan allows it, do a mega-backdoor ROTH.

After you have explored those options, it's time to start saving in taxable account.
Typically around here a low-cost index fund is the most popular choice. I'm fond of the SP500, though others prefer the total market index or a blended fund that contains some porportion of stocks and bonds. 
It's important to have an Investor Policy Statement (IPS) and to stick to that plan.  An ISP doesn't have to be complex; I can write mine on an index card.  But it keeps you from chasing hot markets and gives you a plan on where to put your money.

I hope that helps; feel free to ask for clarification if it didn't.

dougules

  • Handlebar Stache
  • *****
  • Posts: 1598
  • Location: AL
Re: What to do with savings
« Reply #3 on: June 29, 2016, 12:02:19 PM »
Having 150K on hand is nothing to be ashamed of!  You're keeping your expenses down and saving.  Yeah, you probably should have researched what to do with that money a little earlier, but you're doing it now.  I was in the same position a few years ago being a little too lazy about getting the cash invested.  I actually found MMM while digging around trying to find investment advice.  You should feel proud of yourself for saving all that up and having the sense to ask the right questions. 

If you can't refinance lower, I'd personally put into the mortgage everything above your rainy day fund.  If you can refinance down to like 2-3%, then you might be able to consider dragging the mortgage out and investing the difference.  I don't really know what mortgage rates look like right now, though, since we paid ours off almost two years ago (happy dance!).
« Last Edit: June 29, 2016, 12:23:08 PM by dougules »

Lulu0204

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: What to do with savings
« Reply #4 on: June 29, 2016, 01:02:06 PM »
I hadn't thought of using an HSA, interesting. Thanks nereo! I wonder what are the chances that this will become more heavily regulated in the future. I will look into the backdoor Roth options as well as I am not as familiar with those. Would you keep the 3-9 month expenses in the savings account or in a different highly accessible account (like Betterment for example)?

I believe 15 year mortgage rates are around 3% these days - I will have to see if it is worth it to refinance at that lower rate. Congrats on paying off your mortgage, dougules! That is so awesome!


biglawinvestor

  • 5 O'Clock Shadow
  • *
  • Posts: 56
  • Location: Brooklyn
    • The Biglaw Investor
Re: What to do with savings
« Reply #5 on: June 30, 2016, 01:43:11 PM »
Definitely do the backdoor Roth (x2 - one for you and your husband, total of $11K).

Max out the HSA. It's a stealth IRA account and the only triple-tax-advantaged account available.

I keep my "emergency funds" in Vanguard LifeStrategy Conservative Growth Fund Investor Shares (VSCGX). It's a 60/40 mix of bonds/stocks, but to each their own.

MichaelB

  • Stubble
  • **
  • Posts: 128
  • Age: 32
  • Location: Charlotte, NC
  • FIRE goal: April 2032
Re: What to do with savings
« Reply #6 on: June 30, 2016, 01:58:35 PM »
Here's an article laying out why the HSA is so great. It combines the advantages of a Trad and a Roth, plus you avoid FICA as well if it's funded thru payroll deductions.

http://www.madfientist.com/ultimate-retirement-account/

TVRodriguez

  • Pencil Stache
  • ****
  • Posts: 549
Re: What to do with savings
« Reply #7 on: June 30, 2016, 02:03:12 PM »
When I had extra savings and a mortgage, I put it towards the mortgage (after funding retirement accounts for the year).  We got rid of our mortgage this year (10 years into owning), and we're thrilled to be rid of it.  We like being completely debt free.

MustacheAndaHalf

  • Handlebar Stache
  • *****
  • Posts: 1758
Re: What to do with savings
« Reply #8 on: June 30, 2016, 02:57:31 PM »
You might need financial planning before you need investment.  Do you have an emergency fund?  You want something to cushion a situation where both of you could be not getting paid at the same time.  Recommendations vary from 6-12 months, and the $150k suggests to me you'd prefer a larger emergency fund - especially if you don't know what new expenses you'll incur as SAHM.  The emergency fund is money you keep save and available - so your savings account is appropriate for it. 

What kind of expense ratios do you see in your 401(k) plan?  There's a few companies who try to make this information easy to find, and many who would prefer people don't know.  Seeing under 0.50% is good, and seeing near 1.00% is average or bad.  Expense ratios drag your returns down - it's money directly taken from your assets to pay the fund's expenses, without being shown anywhere.  In terms of low expenses, Vanguard is the clear leader.  But if you want to invest at Fidelity or Schwab you can find a mix of high expense and low expense funds, you just have to be more careful.