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Mid 30s finances critique please

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  • Mid 30s finances critique please

    Trying to figure out investment strategy and refinancing house.

    Spouse and I both work FT. No kids yet, but hopefully 1-2 pretty soon. . Mid 30s. Mortgage only debt. Will be buying new car soon (not sure if cash or finance). Very high cost of living area. About $250k in savings (savings acct).

    We both put 18k in 401k. Prob about $150k currently in retirement combined mostly in 401k.

    Don’t have anything in the market except for the 401k.

    About 31k take home per month.

    Currently 10k to mortgage. This is for 30 year, 1 year in. Refinancing now to lower rate. Considering 15 year which would cost 12k. 20 year would be 10k, same as current payment. Thoughts here?

    5k per month earmarked for living expenses (includes budgeting for vacations, car insurance, car payment if going to finance, bills, food, eating out, etc).

    Savings the rest at the moment. Ended up with an extra $30k tax bill last year so budgeting out per month would leave about $10-12k savings per month. Currently just putting this is in savings account but considering to start investing some. Maybe 3-4K?

    Sorry for long post. Would appreciate any thoughts/advice/critique.

  • #2
    Why do you want to put more in savings when you already have too much? Invest


    • #3
      Gross income.

      Savings rate.



      Where is the rest of your money?


      • #4
        Gross 640 combined, about 50k per month factoring in two 401k contributions I suppose. So about 20 k per month in taxes.

        I guess that accounts for it.

        Invest in index funds? Bond funds? How much of the extra savings per month? Wary of this since I don’t know what I’m doing.


        • #5
          That’s a crazy mortgage. Definitely refinance to something better if it makes sense. Search for the refinance calculator in the Should I Refinance thread if you want to see if it makes sense financially

          Invest your money. But only do so after you have a plan:

          Financial goals
          Asset allocation
          What accounts things will be going to in a tax efficient manner
          Rebalancing plan

          Essentially, do an investor policy statement. Then invest. You have a lot of extra cash sitting there. Opportunity cost is high.


          • #6

            We both put 18k in 401k.
            Click to expand...

            The limit was $18.5K last year and $19K this year:

            "This year the IRS has increased the maximum employee 401(k) contribution limit to $19,000 per year. The maximum contribution for 2018 was $18,500.

            The situation is the same with catch-up contributions. Those represent the additional amount of contributions that you can make to a 401(k) plan if you are age 50 or older.

            For 2019, that number remains at $6,000, which is also the same as the catch-up contributions in 2018 and 2017."



            • #7
              Yeah, mortgage is expensive. No doubt.

              We max out the 401k until can’t put any more in.

              Just not sure what to do with financial goals, etc. save as much as possible I guess. Haha. Putting away $130k a year should be more than sufficient I would think. Don’t have an asset allocation plan. Seems like don’t really have any tax avenues. I guess I could put money in traditional IRA for both of us per year of 11k. Just not sure what to do with this extra money.

              One of us will also get pension through employer.


              • #8


                • #9
                  Is that 10 K per month for the mortgage?  You didn't list your combined income, but that is a lot of house/ will end up being the majority of your net worth.    remember that most of the times, homes only appreciate as much as inflation so they are not a great "asset" to tie up your net worth into.  Also expensive houses tend to have high taxes and costs associated with them that make them more of a liability then an asset.



                  • #10
                    Back door Roth IRA.
                    HSA if able
                    457bif available

                    Those are the options

                    20% of your gross needs to go towards retirement. If you want to work a normal length career and maintain your standard of living in retirement. Stuffing money in a savings account is not going to cut it. The interest is too low and you lose to inflation. You should read about asset allocation and write an IPS.

                    You found the right place. You are young so you have lots of time to fix this.
                    Read the wci and boglehead books.
                    Read the old posts under getting started.
                    Ask any questions that come up here and we will help.
                    Good luck!


                    • #11
                      I’m guessing you have ~1M mortgage balance, and hopefully at least $200K in home equity. There are many correct answers here and it helps to run the numbers for alternate scenarios, but my instinct would be to refinance to 15-year mortgage. Assuming a 0.75% rate difference on a balance of $1M, that’s $7,500 less per year you’re giving the bank, which is like earning $12,000/year in taxable interest. You’d need $500K in a high-yield savings account to earn $12,000/year in taxable interest.

                      If your LTV is currently >70%, you may be able to further lower the rate by putting more equity in, which may turn out to be a better return for that money than letting it sit in a taxable savings account earning under 2% after taxes.

                      If you’re planning on kids soon and gonna structure the mortgage to have a relatively high fixed monthly cost, probably worth getting ~$2M term life policies for each of you, if you don’t want surviving spouse or kid(s) to have to move in the event of untimely demise of one of you. Hopefully $1K/year for each of you for 10-20 year term.


                      • #12
                        Thanks for all the input. Will have to look some of those terms up.

                        Mortgage balance is 1.5. With 0.5 in equity. 30 year is about 4%, which is what I’m currently at. 15 year will be 3.25. Super high cost of living location, as you might expect with those numbers.


                        • #13
                          Combined income is 640. About 25% of gross going to retirement/savings.


                          • #14
                            1.5M * 4% = $60k/year in interest.
                            1.5M * 3.25% = $48,750/year in interest.
                            1.3M * 3.25% = $42,250/year in interest.

                            There are limits on tax deductibility of interest and local taxes, and certainly mortgage insurance which it appears you are not paying, but the bottom line is that the less money you’re sending to the bank in interest every year, the more you’re getting to keep.


                            • #15
                              Do zero things until you have a plan and read more.