What next?

[M-squared]

Lately I feel as if I've come to a bit of an impasse in my financial life.

Here is a snapshot:

DH and I are both mid-30's with full time jobs. We have a mortgage, but no other debt. The cars are paid for and we use our CC for convenience, paying them in full each month. We do not get paid a lot, but we live comfortably with our salaries. Our biggest expense being full time private day care, which will suddenly be reduced by half this summer. (I have an annual summer leave, so we drop day care to half time during the summer months.) Our day care costs will not go back up, as one of our children will be starting full day school in the fall at a considerably lower cost than a private child minder.

We both participate in our 403(b) accounts. (DH puts in his company match, plus 10% of his salary.) My work gives me an automatic 10% of my salary, and I match that with almost 10% of my own.

We've been fully funding my Roth for a few years, and just this year we've opened one (fully funded for 2008 DH.) I suppose we should have funded it for 2007, but it didn't occur to me before I sent the paperwork in.

We have two small children and we contribute to their 529 plans monthly.

We have a modest 2 year CD that we automatically roll over each time. (matures every other June).

We have a decent emergency fund, and a more sizeable money market fund that we tend to "park" money in until we decide what to do with it.

Up until now, we've always had a savings goal. Either pay off student loans, or save for the house down payment, or save for a new car, etc. We don't have a big goal like that now, so what is the next step?

Thanks for your advice.

[disneysteve]

It is not too late to fund your 2007 Roths. You have until April 15, so go ahead and do that if you have the funds available. Even if you can't fully fund it, put in what you can.

I think you should always have money set aside for a car because you never really know when you might have to replace one. In the past 8 years, we had to replace 2 vehicles that were suddenly destroyed. You could take that money out of your EF but might prefer to have money in addition to your EF for that purpose.

Beyond that, I'd suggest boosting the 403b contributions. 10% is a great start but 11% or 12% or 13% is even better.

[M-squared]

Thanks. We better not have to replace a car any time soon, as DH's is new and mine just got a $1800 face lift (or rather, brakes, struts, wheel bearings, etc lift) but I know what you mean.

Increasing the 403b is a great idea. We will probably wait until our day care expenses drop and then put that extra into the 403b funds. We try to increase every time we get a salary raise, but with the kids it hasn't been easy.

[disneysteve]

Originally Posted by M-squared

Thanks. We better not have to replace a car any time soon, as DH's is new and mine just got a $1800 face lift (or rather, brakes, struts, wheel bearings, etc lift) but I know what you mean.

Increasing the 403b is a great idea. We will probably wait until our day care expenses drop and then put that extra into the 403b funds. We try to increase every time we get a salary raise, but with the kids it hasn't been easy.

Losing the day care expense is essentially the same as getting a raise, so treat it the same way. I'm getting a $150/month "raise" in 2 months when DD's braces are paid off and I intend to add that money to our monthly investments.

We had a run of bad luck with cars which is hopefully over. A 4-year-old van was destroyed by a fire and a 2-year-old van was totaled in an accident.

[MonkeyMama]

I had to add, I would ask your broker if you could reclassify the '08 ROTH contribution to '07. IT shouldn't be a big deal (I don't think?). Then you have a year to fund 2008.

The general rule is 403bs to match, then ROTHs to max (particularly since you are so young, but also because you can invest anywhere, whereas 403bs and the like are more limited), and then 403bs to max.

You should both be able to put in $15,500 each into your 403bs and that is what I Would aim for. I know it is the tax accountant in me, but the more you put in the less you pay taxes on (& the lower your tax bracket is, etc.). So I would do my best to max out. Then you can keep more of your money overall.

At this stage in the game your focus is probably more retirement than anything. It just depends if you have other life goals in the interim. Making sure college is funded, you have plenty of cash for a rainy day, and whatever else you want to do with your life in the interim.

But practically, retirement is a good place to focus your energies. You are young and the more you put in now, the less you should have to worry about it later.

We're kind of in the same boat. I identified with much of your post, down to the whole daycare thing. We have one starting school this year too, so what a load off. But we are a little further behind on our retirement contributions, and kind of where are energies will lie for the next few years.

[maat55]

Looks like its time to have some fun. Go on a trip or something. You seem to have done the right things, I would start planning a trip to Disney world.

[LuxLiving]

Here's a couple more goals for you - right after you return from Disney!

Wills/Estate Planning.

Life Insurance.

Long Term Care Insurance.

If you think you'll stay in the same area - Burial Plots.

Gravestone Markers.

(you might think I'm kidding, but I'm not.)

[disneysteve]

Originally Posted by maat55

I would start planning a trip to Disney world.

I like the way you think.

Although honestly, I would have suggested something pricier as I don't think of Disney as a "big" savings goal. I guess that's because we go annually and it really doesn't cost much.

[maat55]

Originally Posted by disneysteve

I like the way you think.

Although honestly, I would have suggested something pricier as I don't think of Disney as a "big" savings goal. I guess that's because we go annually and it really doesn't cost much.

One of my regrets in life is, that I never took my girls to Disneyworld. We have been to Sixflags, but it probably doesn't compare.

[Seeker]

Originally Posted by maat55
I would start planning a trip to Disney world.

Originally Posted by disneysteve

I like the way you think.

Although honestly, I would have suggested something pricier as I don't think of Disney as a "big" savings goal. I guess that's because we go annually and it really doesn't cost much.

How much a visit to Disney World costs, would depend on how far the distance the OP would have to travel to get to Florida. So while DisneySteve's costs may not be as much, ours would involve longer airplane flights and would cost considerably more.

If OP's children are just entering kindergarten, then I'd recommend saving and taking the kids when they are a bit older. When they are better able to remember the trip.

[disneysteve]

Originally Posted by Seeker

How much a visit to Disney World costs, would depend on how far the distance the OP would have to travel to get to Florida.

That and where you choose to stay. If you book a room at a Disney Deluxe hotel you could be paying $300/night or more. We rent a place off-site and spend under $300 for the week.

In case anyone is wondering, we spend about $2,000 for a week's vacation to Disney World.

[Scanner]

DisneySteve is my new travel agent.

Without giving too much detail. . .what percentage of your 403(b) and Roth's are in equities and bonds?

If you have any at all in bonds, I would move them to something more risky. . .like 100% equity allocation - small caps, large caps, mid caps, real estate, etc.

Then. . .take your discretionary income (and yes, after a Disney trip) and prepay your mortgage, especially if you are in the first 10 years of it. This, in effect becomes the "bond" part of your portfolio (risk-free prepaying debt). You'll save interest.

And besides. . . all the mortgage brokers out there need some "liquidity" now. . .they are all waiting for us to send our checks in every month so they can loan it out again, ha, ha.

[jIM_Ohio]

Originally Posted by M-squared

Lately I feel as if I've come to a bit of an impasse in my financial life.

Here is a snapshot:

DH and I are both mid-30's with full time jobs. We have a mortgage, but no other debt. The cars are paid for and we use our CC for convenience, paying them in full each month. We do not get paid a lot, but we live comfortably with our salaries. Our biggest expense being full time private day care, which will suddenly be reduced by half this summer. (I have an annual summer leave, so we drop day care to half time during the summer months.) Our day care costs will not go back up, as one of our children will be starting full day school in the fall at a considerably lower cost than a private child minder.

We both participate in our 403(b) accounts. (DH puts in his company match, plus 10% of his salary.) My work gives me an automatic 10% of my salary, and I match that with almost 10% of my own.

We've been fully funding my Roth for a few years, and just this year we've opened one (fully funded for 2008 DH.) I suppose we should have funded it for 2007, but it didn't occur to me before I sent the paperwork in.

We have two small children and we contribute to their 529 plans monthly.

We have a modest 2 year CD that we automatically roll over each time. (matures every other June).

We have a decent emergency fund, and a more sizeable money market fund that we tend to "park" money in until we decide what to do with it.

Up until now, we've always had a savings goal. Either pay off student loans, or save for the house down payment, or save for a new car, etc. We don't have a big goal like that now, so what is the next step?

Thanks for your advice.

You are doing well.
One thing which you may want to think deeply about is you appear to be "cash rich", but overall, you can do better to make your money work harder for you than you do to earn the money.

Mid 30's- there is a good chance you have 30+ years to retirement. There will be a big bull market sometime in next 30 years. Your goal should be to have as much invested before that Bull as possible. Every 30 year period has had at least one bull, if not two or three. 1998-2000, mid 80's, early 60's, late 1940's.

CDs- good to have
EF- good to have
Paid for house (working on it)- good to have

but all these investments make you cash rich (either by being cash, or in case of house, freeing up cash).

You did not list what investments you have (relative to income, cash on hand or other), and I think this deserves some attention.

[M-squared]

Thanks guys.

Disney, huh? I guess all work and no play is never a good thing. I think that whatever tax refund we get plus Mr. Bush's economic stimulus package will be sending us to Nova Scotia this summer.

Without giving too much detail. . .what percentage of your 403(b) and Roth's are in equities and bonds?
... snip...
Then. . .take your discretionary income (and yes, after a Disney trip) and prepay your mortgage, especially if you are in the first 10 years of it. This, in effect becomes the "bond" part of your portfolio (risk-free prepaying debt). You'll save interest.

The 430bs and Roths are pretty diverse... I do tend towards the more conservative even though I know my timeline is long. I think that the Roth we just opened for DH is an "aged based" portfolio that becomes less risky as the investor gets ages. We have a similar thing for the kids' 529 plans.

We have eight years left on the mortgage.

One thing which you may want to think deeply about is you appear to be "cash rich", but overall, you can do better to make your money work harder for you than you do to earn the money.

EXACTLY! I want to make myself rich in 30+ years. We've got the CD, a money market and a regular savings account. All of which are pretty liquid. the savings account would hold us for 6 months if one of us lost our job. The money market would probably allow us to manage 6-8 months if both of us lost our jobs. I think that there is too much in the money market, but I'm not sure what to do with it.

As far as long term investments, we both have Roths and 403bs. What else is there to think about? I guess the first think that we should do is work on maxing out the 403b accounts. The problem is that our cash flow is such that sometimes we end up with big lumps certain times of the year, rather than having "extra" each month to contribute to the retirement accounts each pay period.

[maat55]

You could start paying down your mortgage. Or saving up for a second home to invest in.

[jIM_Ohio]

Originally Posted by M-squared

Thanks guys.

Disney, huh? I guess all work and no play is never a good thing. I think that whatever tax refund we get plus Mr. Bush's economic stimulus package will be sending us to Nova Scotia this summer.

The 430bs and Roths are pretty diverse... I do tend towards the more conservative even though I know my timeline is long. I think that the Roth we just opened for DH is an "aged based" portfolio that becomes less risky as the investor gets ages. We have a similar thing for the kids' 529 plans.

We have eight years left on the mortgage.



EXACTLY! I want to make myself rich in 30+ years. We've got the CD, a money market and a regular savings account. All of which are pretty liquid. the savings account would hold us for 6 months if one of us lost our job. The money market would probably allow us to manage 6-8 months if both of us lost our jobs. I think that there is too much in the money market, but I'm not sure what to do with it.

As far as long term investments, we both have Roths and 403bs. What else is there to think about? I guess the first think that we should do is work on maxing out the 403b accounts. The problem is that our cash flow is such that sometimes we end up with big lumps certain times of the year, rather than having "extra" each month to contribute to the retirement accounts each pay period.

Get in habit of setting aside a given percentage to savings every check.

So maybe 15% every paycheck, then 15% again when those bonuses or commissions come in.

15%- send to Roth, send to 403b (is there a match, and how good are the choices?) and then the rest to a taxable account.

Make sure you have an asset allocation, and put the 15% contributions into investments within the asset allocation you define.

[disneysteve]

Originally Posted by jIM_Ohio

Get in habit of setting aside a given percentage to savings every check.

So maybe 15% every paycheck, then 15% again when those bonuses or commissions come in.

This is exactly what I do. Way back when, it was 6% of take-home. Little by little, I bumped it up and it is now 18% of gross going to savings from each check. That is split with part going to fund our Roths, part going to DD's 529 and part going to a taxable account. When the Roths are maxed for the year, that portion gets redirected as extra payments on our HEL. Once the HEL is repaid, that will get redirected again (not sure where yet - we've got about 2 years left to decide).

[zetta]

The problem is that our cash flow is such that sometimes we end up with big lumps certain times of the year, rather than having "extra" each month to contribute to the retirement accounts each pay period.

In this case, you might consider starting to invest in index mutual funds in a taxable account (after you max your ROTHs, of course). Think of it as savings that you don't plan to touch for 10 or 15 years -- you may not have a specific purpose for it, but the money is liquid and growing. Later it could serve to pay off the house, to help your kids with their weddings or first house, or buy a luxury for yourself you might not have otherwise purchased.

[M-squared]

15%- send to Roth, send to 403b (is there a match, and how good are the choices?) and then the rest to a taxable account.

There is a match. DH's is something like 3%, which he does and then supplements with 10%. My work automatically gives me 10% even if I don't match. (Great, I know!) I do match it, though.

I'd love to have a lake/vacation house/investment property one day.

[zetta]

I'd love to have a lake/vacation house/investment property one day.

There's your new goal!

To recap:

1. 10% + 10% employer contribution to wife's 403b
2. 10% + 3% match to husband's 403b
3. max wife's ROTH
4. max husband's ROTH
5. consider increasing 403b contributions to 15%
6. children's 529
7. Vacation house fund