Next steps

[optimist]

So every year around New Year's I try to reassess my financial situation to see what I should be doing the following year. You have been kind enough to indulge me with your advice in years past and I hope to have the benefit of your advice again this year. Here's my financial recap:

40 yrs old
$130K/yr income
$535K net worth
- $360K in 401K
- $100K in equity on a rental
- $40K in a 529 plan (kid is 13 yrs old)
- $35K in cash emergency savings

No debt except $450K mortgage on primary residence and $150K mortgage on the rental condo. (I do have about $50K in equity on the primary residence, but not counting it since I it is not a liquid asset).

currently contributing max to 401K.
currently setting aside $2K monthly to non-retirement accounts, of which $250 goes to 529 plan, $200 to mortgage paydown on the rental, and the rest to cash savings.

So where do I go from here?
I thought of buying another rental condo, but I don't really feel that I have enough cash to pull it off without stress. I would need about $100K for downpayment, renovations, and carrying costs, which I currently do not have. I would also need to beef up my emergency fund since my exposure would increase.

I have considered mutual funds (I previously had a couple of Vanguard funds that I sold), but they do not excite me at all. Not that it has to.

Any thoughts would be greatly appreciated.

[kork13]

What is the goal/intention of the $1550/mo (-ish) that you're sending to cash savings? Anything specific?

It's boring, as you say, but if there aren't any shorter-term needs for the cash savings.... I'd personally divert a lot of the "cash savings" money toward simple, broad-market mutual funds -- a Total Stock Market fund like VTSAX, or more conservatively, a balanced fund like VWIAX. That will let you earn more on your money than 1% sitting in a savings account. (btw -- mutual funds seem "boring", but cash savings is okay? lol)

Regarding your overall worth, I think you're doing fairly well overall. You don't say what your monthly expenses are, but judging from your EF & some magic math, I'll guesstimate around $5500-$6000/mo. So you've got about 5x-5.5x your annual expenses in retirement assets alone, which at age 40 is a pretty good position, and you're well on track to get up to 20x-25x your expenses by your mid-60's.

As for a new rental condo, if you're interested in that, I think it'd be a good option. Probably not yet, since as you said, you don't have the cash available for the purchase and rental prep. But I'd still recommend making that the present goal. I'd suggest keeping everything as-is (you really are doing well), but try to increase your earnings on the $1550/mo in cash savings.

Bottom line: I would use your $1550/mo to build up the funds for a second rental property. Invest $1000/mo in VWIAX (or similar), and $500/mo in I-Bonds. Remaining $50/mo can still go to cash savings. VWIAX has a solid history of steady growth between 5-7% with a well-balanced risk profile. I-Bonds will further reduce your risk profile, and will help you build a cash (-equivalent) savings component that at least keeps up with inflation, which savings accounts are not doing for you. Assuming approximately 5% VWIAX returns and 2% I-Bond returns, this plan would build you up to about $100k within 5 years. Keep in mind that Wellesley isn't all that tax-efficient (true for most balanced funds), so it'll throw off some ST & LT capital gains every year which you'll have to pay taxes on. For the I-Bonds, you can delay paying taxes on their growth until you cash them out.

[snafu]

Optimist, what seems to be missing are financial goals.
By December 15, 2017, I anticipate Net Worth at $ _______ .
Major expenses anticipated:
Personally, I'd pay down mortgage for the double whammy of improved valuation and reduced sum owed.

Before New Year's Day, we review spending in various major categories with emphasis on those items that we primarily control and set a 'target/budget' sum. It's an opportunity to look at appropriateness of various insurance valuations plus cost of operation & maintenance of vehicles and home. Do we need/want a different car? What home upgrades are anticipated/ needed/ wanted? Do we want to continue membership with various organizations?
Advance care directive, Will, beneficiaries named appropriately on accounts etc. Are there orphan accounts better closed?

Since completing The Life-Changing Magic of Tidying Up, we've added a semi annual, quickie review of each room/area to remove, sell, consign, donate, recycle anything no longer used or needed.

[optimist]

Optimist, what seems to be missing are financial goals.
By December 15, 2017, I anticipate Net Worth at $ _______ .
Major expenses anticipated:

Part of the problem is that I don't currently have any specific goals. Even more confusingly, I don't really know what my goals at this stage in life should be. I have always been so focused on paying off debt and saving for retirement and emergencies, that I never really thought beyond it. I guess it is more of a philosophical than financial type of question. What am I supposed to strive for/save for now?

[LivingAlmostLarge]

Do you want to be a landlord? You could refinance potentially the house or rental and buy another one. Depends on cash flow of all properties.

[Nutria]

What am I supposed to strive for/save for now?

We can't (and shouldn't) answer that.

But whatever you do... make sure the "money beyond EF" earns more than 6% in the long run!!

[feh]

So every year around New Year's I try to reassess my financial situation to see what I should be doing the following year. You have been kind enough to indulge me with your advice in years past and I hope to have the benefit of your advice again this year. Here's my financial recap:

40 yrs old
$130K/yr income
$535K net worth
- $360K in 401K
- $100K in equity on a rental
- $40K in a 529 plan (kid is 13 yrs old)
- $35K in cash emergency savings

No debt except $450K mortgage on primary residence and $150K mortgage on the rental condo. (I do have about $50K in equity on the primary residence, but not counting it since I it is not a liquid asset).

No advice for you, but I did want to correct your notion of net worth. Net worth is all assets minus all liabilities.

Using the numbers you have above, your net worth is negative $55K. I did not include the 529, since that money will not be used by you if things go according to plan.

Not trying to be a Debbie Downer; just trying to give you a clear picture of your situation.

[Jluke]

No advice for you, but I did want to correct your notion of net worth. Net worth is all assets minus all liabilities.

Using the numbers you have above, your net worth is negative $55K. I did not include the 529, since that money will not be used by you if things go according to plan.

Not trying to be a Debbie Downer; just trying to give you a clear picture of your situation.

I got -105k net worth... -600 + 495.

but that's the beauty of net worth calculations. yes, there is a text book definition for exactly how to calculate it and we've seen numerous ways that people on here determine their own net worth (hence, personal finance).

However, given the user name optimist I'll assume he doesn't look at the negative. In reality the homes could be sold and he would have a positive net worth (with no where to live).

For me, my text bookl net worth is probably around 650k (for now, stock market willing), but how I monitor my finances I only have 38k net worth.

[Nutria]

For me, my text bookl net worth is probably around 650k (for now, stock market willing), but how I monitor my finances I only have 38k net worth.

We've got to know how you monitor your finances!!

[feh]

However, given the user name optimist I'll assume he doesn't look at the negative.

I'm not going to guess what the thoughts of the OP are, but I am always perplexed when somebody writes "...have no debt except mortgage...", as though a mortgage isn't money owed. It's especially concerning here, as the mortgages are several hundred thousand dollars.

If a 40 year old has an actual net worth of $500K, I'd say they're in very good financial shape. If their net worth is close to zero, not so much, which is why I thought it important to mention it.

[Nutria]

No advice for you, but I did want to correct your notion of net worth. Net worth is all assets minus all liabilities.

He's definitely confusing "assets" with "net worth"...

Using the numbers you have above, your net worth is negative $55K.

Some of those numbers are too ambiguous for us to do any meaningful calculations. His N/W is nowhere near $535K, though. Much closer to your figure.

[Jluke]

We've got to know how you monitor your finances!!

401k, roth, taxable investments, house are not included when monitoring financial picture.

what I do:
Cash savings across accounts minus future expense accounts (escrow, term insurance, car/house insurance, etc) minus credit card spending. I think that is kind of simple.

it forces me to not feel like I have a lot of money, which I don't because most of it I can't touch anyways.

@feh - I agree, debt is debt. In general, a mortgage appears to get "special" treatment but I went against the grain and paid that off before my consumer debt. "but the low rate and the tax savings and beating the market and future value of money, and, and... oh well."

[Nutria]

401k, roth, taxable investments, house are not included when monitoring financial picture.

what I do:
Cash savings across accounts minus future expense accounts (escrow, term insurance, car/house insurance, etc) minus credit card spending. I think that is kind of simple.

it forces me to not feel like I have a lot of money, which I don't because most of it I can't touch anyways.

You can break that kind of thing out in your spreadsheet. For example, I see that our retirement funds are 66% of our assets, and the house is another 22%. Only 8.5% of our assets are really liquid.

(I mention assets only because our debt/assets ratio is only 1.9%, and a "whopping" 5.2% when restricted to non-retirement assets.)

[snafu]

None of us can tell you what goals are best for you but today is a good time to choose a number for Net Worth 12/31/2017.

Do you have a paper or electronic trail that allows you to at least guesstimate your actual contributions to 401K, employer contribution [if applicable] to see return on investments? Are your holdings appropriate to your age and risk tolerance? What are MER/fees?

If your employer does bonuses, where are you on hierarchy, where do you think you could/should/might be?

If you see your employment as 'stable,' is your EF appropriate? What would your basic, monthly expenses total?

Is your insurance coverage appropriate to the value, of insured items. Is the deductible appropriate? What advantages does insurance offer if all held with same vendor/agency. Understand that Insurance only pays KBB value of vehicle [after some firm discussion] so there is no advantage of carrying it's value on purchase date.

If you've no financial goal this second, possibly create one with a vacation out of your current comfort zone. Reach to be the millionaire next door. Take a class in anything that interest you. What fun to suggest what others could do!
Have a wonderful, stress free New Year.

[Petunia 100]

Using the numbers you have above, your net worth is negative $55K. I did not include the 529, since that money will not be used by you if things go according to plan.

I believe you are leaving out the value of the primary home.