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Posted by on May 28, 2008, 11:57 am
After a job change and required company stock sale, I am going to have
around $75K after taxes. My question is, what's the best thing to do
with this money?
Our current situation:
1) ages 35 and 33.
2) 120K family income.
3) 5K monthly expenses
4) 3 children ages 2 to 16 years.
5) no debt besides our 170K 30-year fixed rate mortgage.
6) 13% of our income goes into retirement accounts (150K total in
various accounts)
7) funding college accounts for the kiddos.
8) only 2K in our emergency fund
My first thought is to drop it all into our MMA and use it as our
fully funded emrgency fund. However, it's more than the 6 months of
expenses (5K expenses X 6 months = 30K) rule that I often read about.
Would it be a better choice to have a 30K emergency fund and use the
other 35K in a non-retirement account, pay down our mortgage, fund up
the college accounts or hide it under the mattress :) ?? MMA rates
don't look that great right now, so I'd like suggestions.
Regards,
HH
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Posted by joetaxpayer on May 28, 2008, 12:14 pm
hh_online@mindspring.com wrote:
> After a job change and required company stock sale, I am going to have
> around $75K after taxes. My question is, what's the best thing to do
> with this money?
>
> Our current situation:
> 1) ages 35 and 33.
> 2) 120K family income.
> 3) 5K monthly expenses
> 4) 3 children ages 2 to 16 years.
> 5) no debt besides our 170K 30-year fixed rate mortgage.
> 6) 13% of our income goes into retirement accounts (150K total in
> various accounts)
> 7) funding college accounts for the kiddos.
> 8) only 2K in our emergency fund
You both able to contribute to a 401(k)? This year limit (for the
contributions withheld from your pay) is $15,500 per person. Another
$5,000 can go into an IRA. (You are most likely in the 25% bracket and
pre tax investing is the way to go)
I'd be inclined to increase the retirement savings, maybe not to the
$41K combined max, but higher that the current $16K or so you are
putting in.
Since that would take place over time, I'd start (or increase) the 529
account(s) for the kids, and keep the $75K in MM or CDs and draw down on
it as you make those other investments.
What is the mortgage rate? How much time left? If the rate is high
enough to make a refinance sound, I'd take advantage of the lower 15yr
(vs 30yr) rate, maybe using some of the cash to pay down principal. But
that decision needs more analysis.
Joe
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Posted by on May 28, 2008, 8:12 pm
> hh_online@mindspring.com wrote:
>
> > around $75K after taxes. My question is, what's the best thing to do
> > with this money?
> > 8) only 2K in our emergency fund
> You both able to contribute to a 401(k)? This year limit (for the
..
> Since that would take place over time, I'd start (or increase) the 529
> account(s) for the kids, and keep the $75K in MM or CDs and draw down
> on it as you make those other investments.
Smart move - get that retirement money working!
> What is the mortgage rate? How much time left? If the rate is high
Unless it's significantly above current rates, probably
not worth messing with.
And I wouldn't be in a rush to pay off that house.
Meanwhile, other mid-to-long term savings goals need
to be discussed. We always talk about retirement,
sometimes talk about college, but rarely talk about,
say, building up fund for purchasing one's next car.
To the OP - we need to talk about your goals before
we can really address the question fully. The only
thing I'd say we can suggest almost without hesitation
is that you beef up that emergency fund. $2k is nowhere
near enough, as you said. Build that up to about $30k
and the question of what to do with the remaining $45k
can be addressed.
--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting
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Posted by dapperdobbs on May 28, 2008, 4:05 pm
On May 28, 11:57 am, hh_onl...@mindspring.com wrote:
[snip] My question is, what's the best thing to do
> with this money?
[snip]
> Regards,
> HH
Your own advice is probably the best you can get without paying big
bucks. Your grasp on matching earnings and savings with needs seems
very practical, sound, without debilitating concerns about fractional
decimal places. But, from what you say and your description, I'd say
your problems are just beginning (lucky you!). As you continue to earn
and save over the years you'll be more frequently faced with the
perennial investment decision, "What's the best thing to do with this
money?"
The amounts will be higher both in dollars and in proportion to your
lifetime totals. Most that I've seen in this forum will accept that
returns from sound investments in the stock market are amongst the
highest of various defined, normal, asset classes. You already have
some experience with stocks (e.g. the lot you sold). I'd buy and read
a couple of books on analyzing companies, with a view to investing in
the stock market, and put at least some of your 35k left over after
the emergency fund back into a stock market investment. If you are
confident the company you left will continue to prosper, that might
one place to invest 10k-20k. You didn't mention what your retirement
account is in.
Other than the above, even though it is hard to predict what your
salaries and wants may be thirty years from now, run a spreadsheet or
two using assumptions of around a 7% average annualized return and see
what your resources will look like under different assumptions. You
must be able to "ballpark" numbers - just to get a sketch. That should
give you at least some notion of your investment needs, and as you
refine your spreadsheets over the years, you'll be familiar with them
ten years from now and can get better projections.
Hope that adds something you find useful.
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Posted by rick++ on May 28, 2008, 5:45 pm
You are weak on emergency money.
Thats money to obtain with minor penalty in a week or two
and last you for several months.
Retirement and college accounts arent emergency funds
beacuse they have penalties, taxes, and may time to extract funds.
Loans and credit cards arent emergency funds due to interest costs.
Consider an after-tax investment fund - maybe a balanced fund.
You should conisder it as a n investment with an intermediate
term horizon. If you are expecting an "emergency" every year,
then that expense should really be part of the annual budget.
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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
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