How are we doing Financially - Overview

[skeeter]

I would like to evaluate my financial situation. 2 kids - one 2 years and second one is 1 month old. Wife and I work. we are both in our mid thirties. Take home 120K before taxes. $60K total in 401K $120K cash in savings. $105K mortgage loan @ 4.2%. 38K in car loan @ 1.9% . no other debt. How are we doing financially?

[rennigade]

You have a lot in savings. I would start to bump up your 401k contributions...or move some of that cash to vanguards 3 fund portfolio.

That car loan is certainly an eye sore.

It would be more helpful if you let us know what your monthly expenses are and how much you bring in after taxes. That helps with the big picture in terms of financial overview.

[Jluke]

You're behind on retirement savings. Rule of thumb as others on here have told me is 3 times your gross by age 40

Open a Roth, add 5500 and invest. Do this every year. That should be 5500 for each person. Check out bogle heads for investment strategies

What term is your mortgage and when will it be paid off? If more than 10 years to payoff consider refi or accelerated payments

Car loan is steep but at least you have a decent rate.

More details you provide the more opinions you'll get

[avil_saver36]

You're behind on retirement savings. Rule of thumb as others on here have told me is 3 times your gross by age 40

Open a Roth, add 5500 and invest. Do this every year. That should be 5500 for each person. Check out bogle heads for investment strategies

What term is your mortgage and when will it be paid off? If more than 10 years to payoff consider refi or accelerated payments

Car loan is steep but at least you have a decent rate.

More details you provide the more opinions you'll get

If you put everything in retirement, maybe that rule applies, but not everyone puts all their eggs in the 401K/IRA/Roth.

I don't know why the OP has so much cash, but a guess is that he is looking into buying an investment property. This is exactly a goal of ours too. Strategically bought real estate can easily get rental yield of ~5% alone, and who knows, there could be another real estate bubble down the road too.

IMO, OP is in an excellent financial situation. The reason being his total debt is only $143K and his cash savings are at $120K. Within a few months, he would have enough cash to wipe out the total debt. That's truly a turning point in life. Who cares how much he has in retirement? If you can pay off your primary house and cars while in mid 30s, that's better than possibly 95% of Americans already. Anything over that is pure cream. Every additional year the OP works, the entire money he was putting towards debt payment is now pure savings. If the OP plays his cards right, he can easily save enough "post tax" alone to eclipse any retirement account he has set up. There are many ways to invest - don't ever think that stocks/mutual funds in 401K/Roth is the only way to go.

I will give the OP a comparison point. We are also both in mid 30s (I am 36, wife is 33). We have 1 child. Our gross income is near $160K (it has increased rapidly in the last 3 years...our average income over the last 6 years is probably closer to $100K). My total debt as of now is about $360K (mortgage + 2 cars + a HELOC loan). My 401K is about $90K (wife just started working a permanent employment, so she doesn't have much at this point). Our post tax cash savings in various investment instruments are closer to $150K.

The way I figure is that we have $360K in outstanding loans and only $150K to pay it off (if we were to liquidate everything and throw it all towards out debt). This means we are still not out of the woods yet. As time progresses, our post tax savings increase and our debt decreases (both good trends). At some point, they will meet (my estimate is about 3 years), and that's when I can truly declare my financial independence. At that point, I can completely wipe out my debts (not that I will, because the money will be put where the returns are maximum and all of my debts are very low interest). At that point, I will have a roof over my head and two reliable transports (my 2 cars). Anything above that is real savings, which can be in any form retirement accounts or otherwise.

In my view, good job OP.

[rennigade]

Within a few months, he would have enough cash to wipe out the total debt. That's truly a turning point in life. Who cares how much he has in retirement? If you can pay off your primary house and cars while in mid 30s, that's better than possibly 95% of Americans already.

It appears you are not familiar with compounding interest. I guess if you and OP plan on working forever then yes...who cares how much he has in retirement.

Anyone who has been investing the past 10 years and had a very popular basic fund that tracks the S&P is doing quite well. Thats even with the crash of 2008ish.

[Jluke]

Hopefully we can get more details from OP. I had to make some assumptions. On the surface yes they are in decent shape and well ahead of most. But in this situation OP must hold himself to high savings standards to be where they are today.

I'd also throw in question on college savings plan.

And curious to know why so much cash and where it is. Need to make your money work for you, unless saving up for something big.

[avil_saver36]

It appears you are not familiar with compounding interest. I guess if you and OP plan on working forever then yes...who cares how much he has in retirement.

Anyone who has been investing the past 10 years and had a very popular basic fund that tracks the S&P is doing quite well. Thats even with the crash of 2008ish.

So you think being debt free in mid 30s is not a significant accomplishment?

And why would I NOT WORK if I love my job? I would be bored out of my wits if I quit my job even if I could afford it. I don't have any intention of not working - I don't know what the OP's situation is. I can keep commanding more and more money - already tripled my salary within a decade and it is trending upward. So yes, even if I had nothing in retirement, my prospects make me confident that I can easily accumulate a fortune if I didn't have any debt. I do not understand why I have to assume I would leave my job and let compounding interest take care of me. The best thing a mid 30s professional has are prospects. 35 to 50 is the time when you can ascend and really make a fortune if you are up to it. So no - I don't have any intention of leaving the workforce.

[rennigade]

So you think being debt free in mid 30s is not a significant accomplishment?

And why would I NOT WORK if I love my job? I would be bored out of my wits if I quit my job even if I could afford it. I don't have any intention of not working

I guess being debt free is an accomplishment. Im only 32 and wife is 31. We've been debt free for years. To me its just not that big of deal because its the mindset we have chosen in our early 20's.

Im glad you love your job. I would encourage you to find other hobbies in life though. Life is too short...there are so many amazing things to dabble in. Even if you only dip your toes some things can be life changing positive experiences. Also, I hope you never plan on getting sick or injured in any way (and by sick or injured I dont mean a common cold...more of a life changing kind of illness or injury.) Id hate to see you not be able to work since you arent worried about saving for retirement.

And...no reason to leave a job and let compound interest take care of you. The key is to let compounding interest work your entire working life. If you wait till you're close to retirement to start accumulating wealth...you already missed the boat.

[snafu]

I'd like to know if skeeter and DW expect to stay in current home for the next 40 yrs and anticipated maintenance. How are net earnings allocated and want is the plan to grow $ 120K other than contributions. I hope that $ 38.K vehicle is good for 10 yrs, suitable for 5. I suggest you write goals for June 2020 and see if your knowledge base allows you to meet and exceed.

For example, collect all employer matching retirement funding every year, 1 major house update/upgrade, increase retirement fund value by X % per year, one major external/yard project per year, learn one new skill set per year etc. We always included personal stuff like participate in a community event, do one-on-one child dad event each week [as simple as set or clear the table] or take laundry to/from W/D.

[avil_saver36]

I guess being debt free is an accomplishment. Im only 32 and wife is 31. We've been debt free for years. To me its just not that big of deal because its the mindset we have chosen in our early 20's.

Im glad you love your job. I would encourage you to find other hobbies in life though. Life is too short...there are so many amazing things to dabble in. Even if you only dip your toes some things can be life changing positive experiences. Also, I hope you never plan on getting sick or injured in any way (and by sick or injured I dont mean a common cold...more of a life changing kind of illness or injury.) Id hate to see you not be able to work since you arent worried about saving for retirement.

And...no reason to leave a job and let compound interest take care of you. The key is to let compounding interest work your entire working life. If you wait till you're close to retirement to start accumulating wealth...you already missed the boat.

I completely agree with you about developing hobbies. I got into photograph, star gazing, history among a few things, and I hope to pass those on to my daughter.

I also agree that health can make or break an entire family. In fact that's precisely why I feel getting rid of debt is so crucial.

My point about retirement was that many people (such as myself) do not think of 401K/IRA/Roth as the only retirement vehicles. Being completely debt free "early in life" is also a viable goal towards retirement. Ultimately, it's money you put towards your own betterment and security instead of giving it away to the bankers. The exact form that takes should not really matter. The posters here seem to value funding the 401K type vehicles more than having an "after tax" cash cushion. In my opinion, that's not always the best strategy. Having a large cash cushion can open up several investment options including real estate, and during real estate bubbles (who's to say another one won't come again), your gains can be well over the best the stocks/MFs can muster.

[feh]

I would like to evaluate my financial situation. 2 kids - one 2 years and second one is 1 month old. Wife and I work. we are both in our mid thirties. Take home 120K before taxes. $60K total in 401K $120K cash in savings. $105K mortgage loan @ 4.2%. 38K in car loan @ 1.9% . no other debt. How are we doing financially?

Not enough info. We'd need to see your budget to provide useful feedback.

I suggest you save 20% of your gross salary for retirement. Are you?

[MakeAStash]

Without seeing the spending side, there's no way to evaluate how you're doing.

[wincrasher]

I'd say Skeeter is doing terrific. Why?

Because he has the hard parts down. Proving you can control spending and knowing how to save money.

When most people his age are just now paying off their student loans, have a mess of credit card debt and are just starting to think about buying their first house, he's got all that behind him. He's not having to figure out budgeting, how to pay down high interest debts and figure out what to do about retirement.

So now is the easy part - thinking about high yield investments, college savings and tweaking your budget to get the most out of it. All child's play considering where most people are sitting.

[tripods68]

Its very hard to determine someone financial situation without a budget.

I think financial picture is incomplete--mediocre level if would guess based on the information. Young family with plenty of cash small retirement starting out. It's a good start. I assume there is no college fund set up.

I am concern with a 38K car loan when there is 120K in savings. I get rid of that loan today.

Next is to set 3-6 months of EF towards monthly expenses (house, food, utilities). Park the money in MMA. The rest of the savings should be applied towards paying down the mortgage, or establishing a 529 plan.

How secure is the job situation? Depends on the job security, i'd sock little more 12 months of EF.