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Mid 30s finances critique please

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  • Avatar NationalPark 
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    Status: Physician
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    Joined: 06/22/2019

    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.

    #227790 Reply
    Avatar Panscan 
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    Joined: 03/18/2017

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

    #227791 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4679
    Joined: 01/08/2016

    Gross income.

    Savings rate.

    Taxes.

     

    Where is the rest of your money?

    #227792 Reply
    Liked by wonka31, Lordosis
    Avatar NationalPark 
    Participant
    Status: Physician
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    Joined: 06/22/2019

    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.

    #227797 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 3568
    Joined: 01/14/2017

    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.

    #227804 Reply
    CM CM 
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    Status: Physician
    Posts: 1194
    Joined: 01/14/2017
    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.”

    https://www.goodfinancialcents.com/401k-contribution-limits/

    Erstwhile Dance Theatre of Dayton performer cum bellhop. Carried bags for Cyd Charisse (gracious). Hosted epic company parties after Friday night rehearsals.

    #227806 Reply
    Liked by Peds
    Avatar NationalPark 
    Participant
    Status: Physician
    Posts: 18
    Joined: 06/22/2019

    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.

    #227811 Reply
    Avatar Panscan 
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    Taxable.

    #227814 Reply
    Avatar nephron 
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    Status: Physician
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    Joined: 05/09/2019

    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.

     

    #227819 Reply
    Lordosis Lordosis 
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    Status: Physician
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    Joined: 02/11/2019

    Back door Roth IRA.
    HSA if able
    457bif available
    Taxable

    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!

    “Never let your sense of morals prevent you from doing what is right.”

    #227820 Reply
    Liked by wonka31, Xeno
    Avatar Xeno 
    Participant
    Status: Physician
    Posts: 128
    Joined: 01/24/2016

    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.

    #227822 Reply
    Avatar NationalPark 
    Participant
    Status: Physician
    Posts: 18
    Joined: 06/22/2019

    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.

    #227823 Reply
    Avatar NationalPark 
    Participant
    Status: Physician
    Posts: 18
    Joined: 06/22/2019

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

    #227824 Reply
    Avatar Xeno 
    Participant
    Status: Physician
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    Joined: 01/24/2016

    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.

    #227826 Reply
    ENT Doc ENT Doc 
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    Status: Physician
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    Joined: 01/14/2017

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

    #227827 Reply
    Liked by abds, EndoRobert

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