When you make financial decisions, there are times when you’d like to have others take a look at the decisions you have made and give their honest opinion on whether or not they think you’re on the right track. That is exactly what the writer of this email was looking for:
I earn approximately $77k and my wife is a stay-at-home mom. We carry no credit card debt. We have a 3 year old and a four month old. We have about $70,000 in 401(k) savings and between 3-6 months in liquid savings. We currently contribute about 4% of our income to retirement savings which maximizes my company match. We have about 5-10% equity in a $205,000 home and are aggressively overpaying both our 80% first mortgage (a 5.75 30-year) and our 20% HELOC (prime + .5) second mortgage. We have about $90,000 in federal student loans (85% is mine) debt at relatively low, fixed-rates (and consolidated). After the modest 401 contribution and the mortgage overpayment (about $8500 a year) we don’t really add anything to savings.
Conventional advice often seems to suggest we focus on retirement savings versus things like 529 plans or even aggressive mortgage overpayment. Since we originally put nothing down on our mortgage (and because I want to maximize our ownership stake for my wife’s benefit if I were to die suddenly; I have a $1m term life policy), we have been focused on building equity in our home but less on retirement savings (only that 4% or so). As far as those mortgage over payments, we have been overpaying both mortgages with the logic that the lower rate 30yr has a much higher balance, and the variable HELOC rate has a much lower balance, but we still expect to sell within 2-3 years. I am almost 34 and my wife is 35.
What do you think of the way we are tackling our finances, given goals of increasing net worth, potentially funding college education, retiring at some point, etc. My wife will likely return to work at least part time when our kids are in school in a few years.
Do you believe he on the right financial path given his goals or would you recommend that he make some changes in his financial plan?