Where to park $50k for a 30 year old homeowner

[Attitudeofawinner]

Hello and thank you for taking time from your day to open up my thread. My name is Matthew. I'm 30 years old, engaged, and high on life. I leaned a lot in my 20s about personal finance making both good decisions and bad decisions along the way. Turning 30 years old was a turning point in my life to be more financially responsible than I have been so I decided to cut some fat and sell some of my excess toys. My only big expense in the next 5 years will be a wedding in the fall of 2017 that I'll be paying for myself. (Both myself and my fiancé do not come from families with financial responsibility and they don't have the means to contribute.) My short term goal is to be 100% debt free by the age of 35 while building my 401k and a portfolio with Vanguard. I have a plan in place to hit that goal by Christmas of 2020 which is 5 months ahead of schedule while continuing to max out my 401k and remain CC debt free. Of my toys I decided to sell was a motorcycle, a Porsche Cayenne Turbo, and a car trailer I never used. Both the trailer and bike are sold and the Porsche is currently on consignment at a dealer. Once it's sold I will get a check for about 50 grand give or take a couple thousand. Before I go any further let me quickly list my assets and debt.

Assets:
Home Value $600k
Lamborghini Gallardo Spyder (investment car) $130k
Maserati GranTurismo S $70k
401k $60k
Life path annuity with State Farm $40k
Taxable vanguard mutual fund $10k
Watches $30k
Liquid cash ~$30k


Debt & obligations
Mortgage balance (10 year loan but will be paid 5 years ahead of scheduled maturity date) $230k
Home equity loan $125k
Maserati balance $44k
Subaru lease (daily driver) $300 monthly payment
Utilities & Insurance ~$1000


When the Porsche sells I see three places to park the $50k
1. Payoff Maserati
2. Put toward home equity loan
3. Invest it in my taxable Vanguard mutual fund (VWINX)

The interest rate on the Maserati is 2.44% and I'm about 3 years into the 6 year loan so interest is about $100 bucks a month. The largest benefit I can see with this option is I no longer have the 2nd largest monthly obligation ($1100 monthly) after the mortgage payment. This isn't a huge deal as my income more than supports my obligations, but it's nice to drop a bill. The home equity loan has an interest rate of 3.5% but as you know it's tax deductible. Being in the 33% tax bracket this lowers the effective rate to about 2.3%. Paying this back means less debt and a larger emergency cash bucket as the total line of credit is 200k. The last option would be to invest the money with the Vanguard mutual fund which has been performing very well this year. At first glance to me this seems like the best choice but being a taxable account and my income putting me in a high tax bracket this return could only be slightly higher than then benefit of paying less interest on my debt and of course this option has no guarantee unlike the first two that guarantee me a return in the form of reduced interest on debt. If you have read this far I thank you very much and would like to hear what option you think would be best or if you feel their is a better option I'm all ears. Please keep in mind I don't like risks or gambles. I do not like individual stocks, small cap MF's, tax liens, and not ready for real estate or buying land. That's my plan for after I'm debt free in 5 years. The Lamborghini is a very rare true six speed manual transmission car with 4k miles on it and following the trends of other exotic car manufactures (Ferrari) and the lack of high end brands no longer offering manual transmissions the car should either hold or appreciate in value. One last small yet important note is my fiancé and I have made a personal decision that we do not want to have children which may or may not change your thoughts on my financial situation. Thanks again!

[Jluke]

How long have you been working? The 401k balance seems low if you say you are maxing it out each year.

As your lifestyle implies, you are a high wage earner - you might want to look into a Backdoor Roth.

What is the life path annuity - whole life insurance?? if it is, drop it and get term insurance for when you are married.

why are you leasing the subaru?

will your mortgage be paid off before your home equity loan?

does your fiance's financial picture fall in-line with yours or is it much different? will it be absorbed into your finances or kept separate?

are you looking to retire early?

overall, good (not great) start - you'll want to listen to high wage earners here as well.

[Singuy]

A lot more info is needed. Especially the income post tax. Also what are your other monthly expenses besides the toys? Will there be any new debt(like student loans) coming from the spouse? What will the total household income be once married? Will the spouse be working or stay at home?

Btw, welcome to the forum and we are glad you are deciding to take a more financially responsible path at an early age.

[Attitudeofawinner]

Thanks for your response. Here are the answer your questions

How long have you been working? The 401k balance seems low if you say you are maxing it out each year.

Since I was 21. My former employers 401k that I was not maxing out was rolled to an IRA and wasn't diversified correctly. A couple years ago I used it to payoff my first house which Im fully aware wasn't smart but like I mentioned I learn a lot from good and bad decisions.

As your lifestyle implies, you are a high wage earner - you might want to look into a Backdoor Roth.

I am and I will check into one.

What is the life path annuity - whole life insurance?? if it is, drop it and get term insurance for when you are married.

It's a over funded life insurance that collects dividends and has guaranteed cash value. I believe complete details is on the State Farm website. It's called a 15 year life path and I started it when I was 23. It's a very conservative bucket of money for the future.

why are you leasing the subaru?

I found for a daily commuter a lease on a low end car was a good way to go. I don't like paying cash and holding onto a car when it gets into the high mileage part of its life.

will your mortgage be paid off before your home equity loan?

I put 2k additional to the principle of my mortgage and also put the correct amount (2400) toward the home equity loan so they will both be paid off 12/20. The only thing that could affect that is if he rate on the home equity changes.

does your fiance's financial picture fall in-line with yours or is it much different? will it be absorbed into your finances or kept separate?

She has no debt, and no assets. She has a part time job that pays her day to say expenses like CVS visits and such. Other than that, for her insignificant bills she does have, I pay them.

are you looking to retire early?

I enjoy work so it's doubtful I will want to. I only work 32 hours a week even though it's considered full time so I have plenty of free time to enjoy life.

overall, good (not great) start - you'll want to listen to high wage earners here as well.

I hope they chime in!

[Attitudeofawinner]

A lot more info is needed. Especially the income post tax. Also what are your other monthly expenses besides the toys? Will there be any new debt(like student loans) coming from the spouse? What will the total household income be once married? Will the spouse be working or stay at home?

Btw, welcome to the forum and we are glad you are deciding to take a more financially responsible path at an early age.

I have no CC, student loan, or any other type of debt other than listed above. Other than property tax I pay 2x a year (11k annually) and entertainment expenses like restaurants, light traveling, and such I really don't have any. The wedding will cost about 35k in 2017 but that's about it for the foreseeable future. A vacation home or another expensive car post all my short term goals may happen. She works part time and volunteers so her income is not worth adding into the equation. My earned income is in the high 3's. Thanks for your post and I look forward to hearing your next reply!

[Singuy]

Another question what would you say your average income was in the past 9 years you started working..unless you were making in the 300s since 21..

I wouldn't put all that 50k into an index fund because we are all expecting a pretty flat year..not to mention the stock market is kind of volatile and at its peak. You can put some but max out your tax efficient accounts first.

Is your liquid cash enough to cover for your EF? Seems like you have some hefty expenses monthly. I would put a portion into the home equity loan and just treat the Maserati as an expense. You put 50k and pay off the car but that 50k will be worth 35k next year(sorry to say, Maserati depreciates like a rock). At least with the home equity, the worth of that money is still retained and you save some on interest.

You should increase your contributions into your 401k, max that out, and then do a backdoor roth. After both accounts are maxed, then you can start putting money into taxable accounts.

I think you'll be golden if you save at least 50% of your income/year which is extremely easy for your high income. After taxes you are left with say 250k..so you spend 125k/save125k.


Just as a marker, my wife and I are 33yo and make 400s. My income since 24 was 120k, wife didn't make money until 29, and spent the next two years paying off a 180k student loan. So we have been making in the 350-400 for only 2 years.

Assets
House: 700k
2 cars: 50k
401k/roth: 170k
taxable investment/liquid cash: 150k
Florida prepaid tuition: 29k
Gold/jewelry: 20k

Liabilities:
0


You can definitely go along way with your income, but you should start planning a budget.

[Attitudeofawinner]

Another question what would you say your average income was in the past 9 years you started working..unless you were making in the 300s since 21..

21-24 was the 170-190k area. 25-27 about 250-280 and the last 3 years were 291, 310, and 420. I expect it to average about 350 for the next 5 years.

I wouldn't put the all that 50k into an index fund because we are all expecting a pretty flat year..not to mention the stock market is kind of volatile and at its peak. You can put some but first max out your tax efficient accounts first.

What other tax efficient accounts are available other than my 401k which is and has been maxed since I've been eligible and this "back door roth" I have yet to explore?

Is your liquid cash enough to cover for your EF? Seems like you have some hefty expenses monthly. I would put a portion into the home equity loan and just treat the Maserati as an expense. You put 50k and pay off the car but that 50k will be worth 35k next year(sorry to say, Maserati's depreciate like a rock). At least with the home equity, the worth of that money is still retained and you save some on interest.

I put a lot of "extra" money to pay things off quicker but my actual "bills" total to just about $5500 monthly. My ER more can float this for about 6 months. I have a lot of knowledge about high end cars and buy them right. I bought the Maserati after the significant hit of depreciation when it was barely pre owned and let the first owner get crushed with that. I've had the car about 3 years now and have enjoyed it and the value is 15k less than what I payed for it. I expect no more than 5k a year of annual depreciation over the next few years until it starts to level off and bottom out in the market which is why I wouldn't feel to bad about having it payed for like the Lamborghini is.

You should increase your contributions into your 401k, max that out, and then do a backdoor roth. After both accounts are maxed, then you can start putting money into taxable accounts.

401k is maxed, I'd going to start doing research on this backdoor roth. I would like to further pick your brain on it if I have any questions if you wouldn't mind.

I think you'll be golden if you save at least 50% of your income/year which is extremely easy for your high income. After taxes you are left with say 250k..so you spend 125k/save125k.

Just as a marker, my wife and I are 33yo and make 400s. My income since 24 was 120k, wife didn't make money until 29, and spent the next two years paying off a 180k student loan. So we have been making in the 350-400 for only 2 years.

Assets
House: 700k
2 cars: 50k
401k/roth: 170k
taxable investment/liquid cash: 150k
Florida prepaid tuition: 29k
Gold/jewelry: 20k

Liabilities:
0


You can definitely go along way with your income, but you should start planning a budget.

I find it very refreshing and great to hear about other knowledgeable and successfully young people out there and think its amazing you are in the financial shape you are in if you were making 120's up until recently!! I have a budget setup. My CC in which I pay in full every month that I use to pay for meals, gas, and all other small expenses can creep up much faster than I want it to so one of my goals when I turned 30 was to work on keeping that in check. I'm finding that part to be the biggest challenge.

Thanks again!

[Singuy]

Because your income is too high AND you have a 401k account, any money going toward the IRA account will NOT be tax efficient. You also don't qualify for a straight up roth because of your income. Back-door roth works by putting 5500/year in an IRA and then quickly transfer that over into the Roth IRA. You will need to make two accounts (IRA and a Roth IRA) with your financial brokerage account.

Too bad we are only looking at 5500/year which is not significant given your income level.

I have been on the hunt for good investments to park a good amount of cash in per year..so far our economy is just not working like how I want it.

Savvy investors will tell you that we are experiencing the "TINA" effect (There Is No Alternative). Bond yields are crap, CDs are crap, the stocks are losing steam and have so in the past 3 years. Corporate bonds or preferred stocks can potentially be dangerous because of our impending interest rate raises.

I have experimented with the Lendingclub(not recommended) and preferred stocks(making dividend but I may be SOL when interest rate raises).

I will be looking into places like Peerstreet(and with your income you qualify) next. I would say the safest bet right now is to buy a mixture of dividend aristocrats stocks and vanguard index funds.

Btw, I am not giving you any investment advise and there are risks involved with everything I've talked about.

[scfr]

Would you consider selling the Maserati after you pay it off?

[corn18]

Congrats on being in a reasonably solid financial position. If I were you, I would do the following:

1. 401k max pre-tax ($18k / year)
2. tIRA to backdoor Roth ($5,500 for you now and then another $5,500 for your wife)
3. If your 401k plan allows it, you can contribute after tax dollars up to the $53k limit and then do a mega backdoor Roth.

That's about it for tax advantaged space. Maybe an HSA or FSA if your employer offers it.

That won't use up a lot of your investable dollars, though.

4. Put some away into a taxable account with tax efficient index funds (NOT bond or REIT's)

5. Find another investment outside of the markets. There are several on here that have started a business and/or done well in real estate. You will want to look into that.

What you DON'T want to do is let your lifestyle creep up to the point you aren't able to continue to save/invest a significant portion of that high income.

Tom

[Attitudeofawinner]

Would you consider selling the Maserati after you pay it off?

No, I have a genuine passion in automobiles for several reasons. It is and will always be a part of my financial strategies.

Congrats on being in a reasonably solid financial position. If I were you, I would do the following:

1. 401k max pre-tax ($18k / year) - Done.
2. tIRA to backdoor Roth ($5,500 for you now and then another $5,500 for your wife) Will be looking into.
3. If your 401k plan allows it, you can contribute after tax dollars up to the $53k limit and then do a mega backdoor Roth. Also something I will look into.

That's about it for tax advantaged space. Maybe an HSA or FSA if your employer offers it. My apologies in advance as I'm educated on these topics but not to the level of this forum. What is a HSA and FSA?

4. Put some away into a taxable account with tax efficient index funds (NOT bond or REIT's)

I currently have a 3k monthly auto investment setup with Vanguard into VWINX. I will have to research some additional tax efficient index funds over there.

5. Find another investment outside of the markets. There are several on here that have started a business and/or done well in real estate. You will want to look into that.

What you DON'T want to do is let your lifestyle creep up to the point you aren't able to continue to save/invest a significant portion of that high income.

Tom

Real Estate is on my list after I'm 35 and I have 0 liabilities and I hear you 100% loud and clear on not allowing my lifestyle take away from saving. I knew that a good part of my 20's I wasn't doing all that I could do save. I did manage to payoff a mid 300k home by the time I was 28 and ended up selling it to my mother and step father for a considerable amount less than what it was worth to help them out when I bought the home I now live in which will be my long term residence. I'm overall happy with the results of my 20's but now its really time to start putting a lot more focus on my future and that's why I'm here. Thanks again for your post Tom!

[TexasHusker]

As a car investment, the Gallardo is a poor one. It still has a long way to fall. For close to that kind of jack, you could get a Dino and double your money in another 10 years. If you prefer an 8-banger, the 355s are going to go up likely 30-40 percent over the next decade. You could go with a V12 and do ok with a TR, but I personally never liked them.

That said, I made money on every Ferrari I owned. But my neighbor had a Diablo and lost about $80 grand in 20 months.

The Lambos are a markedly inferior investment to the F-car. My Ferrari mechanic, who works on Lambos too, quietly told me once that in his opinion. Lambo was a glorified kit car, assembled largely from the parts bins of various other cars, including GM, Toyota, and Audi. The Ferrari is superior because of the past and current competition racing pedigree behind the brand. Those engines are proven on the F1 circuit.

Now, that Maser GT you have is going to end up being a classic. Plus it's bullet proof.

[Attitudeofawinner]

As a car investment, the Gallardo is a poor one. It still has a long way to fall. For close to that kind of jack, you could get a Dino and double your money in another 10 years. If you prefer an 8-banger, the 355s are going to go up likely 30-40 percent over the next decade. You could go with a V12 and do ok with a TR, but I personally never liked them.

That said, I made money on every Ferrari I owned. But my neighbor had a Diablo and lost about $80 grand in 20 months.

The Lambos are a markedly inferior investment to the F-car. My Ferrari mechanic, who works on Lambos too, quietly told me once that in his opinion. Lambo was a glorified kit car, assembled largely from the parts bins of various other cars, including GM, Toyota, and Audi. The Ferrari is superior because of the past and current competition racing pedigree behind the brand. Those engines are proven on the F1 circuit.

Now, that Maser GT you have is going to end up being a classic. Plus it's bullet proof.

I agree with you 99% of all Gallardo's are a horrible choice for an investment, unless its a newer model stick shift car with low miles. I have a 2008 with 4k miles in convertible format (Only about 70 cars configured this way made it to the US) Have you seen the demand for a Lamborghini Murcielago in a stick shift? If you can even find one it commands a huge premium over the E gear versions. The Ferrari F430 in a stick shift which is the Gallardo's main competitor are double the "F1 auto" form car. Eventually all italian stick shifts will dry up and the low mileage clean examples left will command quite the premium. Just like any investment their are risks but I have already seen a few cars similar to mine with much higher mileage (25k+, mine has 4k) sell for more money than I payed for mine just a year ago. My car would make me $15k in profit if I sold it in the current market. I would have went Ferrari. In fact, I had a 2007 Ferrari F430 (F1 paddle shift) and I liked that a bit better than the current Lamborghini I have however the prices for the stick shift cars were already heavily inflated. The Gallardo is the next best thing. Another car that will be a car to buy is going to be a low mileage clean example of an Aston Martin DBS in a stick shift. For those that don't know most companies are phasing out the manual shift option in cars. Ferrari gave it up in 2009, Lamborghini followed suit in 2013. Stick shift exotics are already commanding a huge premium. In 20 years when my car has under 10k miles and I've enjoyed having it, I'm betting it well worth the initial cost. Plus these cars are a blast to drive!

[corn18]

What is a HSA and FSA?

Health Savings Account (only applies to High Deductible Health Plans (HDHP)) and Family Savings Account (offered by employer). I use my FSA just to save some tax dollars (I'm in the top marginal tax bracket so every dollar I can put somewhere tax free makes me at least 39.6% ROI). You're in the same boat, so anything you can hide from the tax man is a money maker.

I currently have a 3k monthly auto investment setup with Vanguard into VWINX. I will have to research some additional tax efficient index funds over there.

Nothing wrong with VWINX.

I think the best thing you could do with the extra money is get more income streams going. Making more salary is great, but it has a marginal ROI. Depending on your state and local taxes, it can be frustrating when every extra dollar you make nets you 54 cents. If you spend your free time developing alternate forms of income (especially a business), you can do much better than finding a higher paying job.

Tom

[TexasHusker]

Had a chance to buy a burgundy Dino for $14K when I was in high school. Only problem is I didn't have $14K.