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[lukem]

Age 29, married, kids
Stable employment
Monthly Take-Home = 3700
7pct 401k, match 50pct up to 6pct
Max out 2 Roth IRAs (10k) (7K from paycheck, kick in 3K from take-home)
Retirement savings rate = 24% (including match)
Retirement Balance = 60K
Approx 5k income on company stock options, but none of that figures into the above. Just "extra" at this point.
E-Fund of 17.5K
2k checking
Owe 33K on mortgage, 350/mo, 11 yr term. Appraised at 150K when purchased 8 months ago. No other other dept whatsoever.

After all expenses (including IRA contributions) I usually have 1k left over from take-home. This includes donating 10% of gross to church/charity. Up until recently I've been putting the leftovers in E-Fund, but now it is "extra" since I *think* that is sufficient.

No major purchases in foreseeable future (2 vehicles with < 25K miles, just moved to bigger house).

We will start sending 1 child to private school next year, tuition about 150/month.

I know I need more life insurance, but don't know what to get. Already have some through work (450K).

No college savings. Considering 529 plan.

I want to do some home improvements, but will spend no more than 20K over the next 5 years.

So, any suggestions on what to do with the "extra"? Life insurance? College savings? Overall, doing OK?

Thanks all.

[jIM_Ohio]

Age 29, married, kids
Stable employment
Monthly Take-Home = 3700
7pct 401k, match 50pct up to 6pct
Max out 2 Roth IRAs (10k) (7K from paycheck, kick in 3K from take-home)
Retirement savings rate = 24% (including match)
Retirement Balance = 60K
Approx 5k income on company stock options, but none of that figures into the above. Just "extra" at this point.
E-Fund of 17.5K
2k checking
Owe 33K on mortgage, 350/mo, 11 yr term. Appraised at 150K when purchased 8 months ago. No other other dept whatsoever.

After all expenses (including IRA contributions) I usually have 1k left over from take-home. This includes donating 10% of gross to church/charity. Up until recently I've been putting the leftovers in E-Fund, but now it is "extra" since I *think* that is sufficient.

No major purchases in foreseeable future (2 vehicles with < 25K miles, just moved to bigger house).

We will start sending 1 child to private school next year, tuition about 150/month.

I know I need more life insurance, but don't know what to get. Already have some through work (450K).

No college savings. Considering 529 plan.

I want to do some home improvements, but will spend no more than 20K over the next 5 years.

So, any suggestions on what to do with the "extra"? Life insurance? College savings?

Thanks all.

There is an emergency fund thread at top of new posts list, read that so I don't repeat a long post here LOL.


My assessment-

I see 14% going to retirement and $1000/mo free cash flow in addition to this.


My suggestions

Put $200/mo back in budget for kids education ($150/mo plus $600/yr for school expenses like backpack, field trips and other hidden costs).

Put $6-700/mo into intermediate term savings (for house repairs and college)

Add $100/mo into budget for discretionary spending.

Add $100/mo for life insurance (this is high, make sure spouse has coverage too)

I will caution you to not put all college savings into a 529. Some is good, but my opinion (often debated) is that you are better off using college money now to

a) pay down your mortgage
b) make sure rest of budget is solid
c) and plan to use taxable money for a portion of college costs (to take advantage of hope credit and lifetime learning credit). To use either credit, the money must come from taxable accounts (either paychecks or savings).

My college savings example for you
kid is either 5yo (about to enter kindergarten) or 14 yo (about to enter HS) is my assumption.

Your mortgage is $350/mo
Your free cash flow for college expenses is $600/mo+200/mo (the education costs for now will also be available when college starts- correct?)

If the $600/mo is applied to mortgage balance, you would have $1150/mo in budget as free cash flow. That pays for college costs of just under $14,000 per year. Not enough for 100% of tuition covered, but a decent dent into the projected cost (worst case is that covers 1/3 of cost in about 13 years). Meaning without even saving a dime in a 529, you have 1/3 of college cost taken care of just with good financial bookkeeping over next 13 years (don't take on any more debt, use the free cash flow to do household projects, take vacations and enjoy life).

When kid is a freshman and sophomore in HS, replace the cars (so they last for next 6 years without a major expense) and finish all household projects. Boost EF up to 24 mos expenses too.

Then when kid is a Junior in HS, start stashing the cash in savings for college ($14k per year) and by Freshman year you would have $28,000 in savings, plus another $14k per year coming into budget to subsidize the cost. If you plan to pay for 100% of college you need to plan more than this, if you plan to contribute a lot, but let kid pay for some, this should work quite well.


The way the Hope credit works is this. Assuming you use TAXABLE savings to pay for qualified expenses (tuition is qualified, room and board is not- check IRS site for details) is you get a 75% return on your money.

The numbers change often, here are basics in form of an example with 2007 credit amounts (from my tax course)

pay $1100 in tuition get $1100 tax credit back (100%)
pay another $1100 in tuition get another $550 back (50%)
so pay $2200 and get $1650 back- that is a 75% return on your money.

So at minimum my advice is keep enough money in a taxable account to spend about $3000-$4000 per year in cash for tuition (to take advantage of credits like this). This means spend $2200 and next year's tax return kicks in another $1650 for tuition (the following year).

As long as the credit exists, it is a 75% return "guaranteed". If you put $10,000 in a 529, in Ohio you would save $550 in state taxes (5.5% is my state tax bracket) and that money would have to grow to $17,500 to get you same 75% return. How aggressive would you invest the 529? What is your state tax rate? In general 529's are not the best way to lower taxes. If you are rich, they are usually above the line deductions when everything else was phases out. If you are middle class, bump up 401k some (for tax savings now) then lower it later when you need more cash flow for college expenses.

For Junior and Senior year, you would use lifetime learning credit, that is 20% of $10,000 (so max credit of $2000). Meaning for Junior and Senior years you need $10k of taxable monies to receive $2000 back in form of tax credit.


Summary-
529s are good deal for people which can contribute a lot to them. You save state taxes, but not federal. You will lose out on Federal tax credits if all of college is paid with 529 monies.

Use the $1000/mo free cash flow to accomplish what you want- house improvement and education wise. Make sure mortgage is paid off before kid starts college as well (seems like you have that taken care of already).

[lukem]

Retirement savings is 24% of gross income excluding bonuses (not even mention on this as it is highly variable 5 - 15 % of gross) and stock...not 14%. I treat them as exactly what they are...bonuses...I don't budget any of it for anything.

Gross = 70k. IRA = 10K. 401k (including match) is 7K. 17K / 70K = 24pct.

Child entering kindergarten next year, not high school, so I have some time before college rolls around. They WILL pay for some of college even if I was a billionaire. I paid for 100% of mine with no loans. It builds character.

My federal tax burden was 0 last year. State is IN...no idea what tax rate is.

[jIM_Ohio]

Retirement savings is 24% of gross income excluding bonuses (not even mention on this as it is highly variable 5 - 15 % of gross) and stock...not 14%. I treat them as exactly what they are...bonuses...I don't budget any of it for anything.

Gross = 70k. IRA = 10K. 401k (including match) is 7K. 17K / 70K = 24pct.

Child entering kindergarten next year, not high school, so I have some time before college rolls around. They WILL pay for some of college even if I was a billionaire. I paid for 100% of mine with no loans. It builds character.

My federal tax burden was 0 last year. State is IN...no idea what tax rate is.

I live about 65 miles from Indiana- your state tax rate is much less than mine (I live just outside of Cincinnati). I looked into it when I was checking out tax rates for KY-IN-OH tri state area.

If you put in $10,000 to a 529, you "might" see $300 lowered in state taxes- you can decide if $300 is enough, or is something you would just blow in a few minutes at Argosy. I do not think IN taxes are much higher than 3% but check me on that.

In your case, because your tax burden is so low, I will suggest you focus on taxable accounts for now as college savings goes. Maybe put some minimal amount to the 529 (like $100.mo) and couple that with $100/mo for life insurance, $200/mo for schools and then $500/mo going to general cash and short term needs. Add $100/mo to spending as life is short and you never know anyway.

Out of that $500 I would expect
a) all house improvements could be funded with cash
b) your mortgage is paid off
c) college payments can come from that 13 years from now.

In 4 years this should pay off the mortgage.
That 5th year you could do a majority of the 20k of house improvements
from year 7 on, that money is "unaccounted for"

[jpg7n16]

No major purchases in foreseeable future (2 vehicles with < 25K miles, just moved to bigger house).

We will start sending 1 child to private school next year, tuition about 150/month.

I know I need more life insurance, but don't know what to get. Already have some through work (450K).

No college savings. Considering 529 plan.

I want to do some home improvements, but will spend no more than 20K over the next 5 years.

So, any suggestions on what to do with the "extra"? Life insurance? College savings? Overall, doing OK?

Thanks all.

If you don't have life insurance you should get it. Not because you have extra, but because you have a family and kids. (get 20 or 30 yr term around 10-12x your income)

If you're covered on insurance, I'd probably split the extra $1000 into college savings and a brokerage account. You're good on cash in the EF.



I don't really see any problems - except if you don't have life insurance. That's a big problem.