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I totally understand it's a good problem to have, but it's still foreign to me.
In just a few months my take home household income will double. This is after putting 20% into a 401(k).
My family lives modestly, but comfortably, and we live on just 75% of our take home now, putting that other 25% towards who knows what in the future and everything was working out just fine.
But now we will be living on just 37.5% of our take home and I figured you guys would have the best insight on what to do with such large savings.
Early Retirement isn't in the cards, the spouse and I both love our careers and although that could change its not likely. Can't cut back on hours either (salary).
On our current income we go on vacations, drive safe and reliable cars, live in a great area, and eat healthy food (natural vice organic if that makes sense). There's really no further utility for us, so what do you guys do.
However, you do not tell us how much actual money you are talking about. 1K per month? 10K?
What savings do you have outside the 401K? How many children? How much saved for college for them? Own your home or rent?
It's a good problem to have, but all the information out there seems to be about getting out of debt, or percentage based living, and it just doesn't fit my new reality.
Sorry, I wasn't sure if actual numbers would be seen as a quote "humble brag."
Rent and Health Insurance are covered outside the take home, ownership isn't an option as we move too frequently to break even on the transaction costs of buying and selling.
We are doubling from $5,000/month take home to $10,000/ month take home (and it'll double again in a couple of years).
Our two young kids have zero college savings (I guess that's a starting point, although my partner and I were given nothing by our parents for college so we aren't sure we want to help our kids, we can afford to, but we just aren't sure how that will affect their path).
Savings outside of 401(k) makes up a years expenses, and we are vested in a defined benefit retirement plan that if it remains solvent would provide more than we take home now.
Live as if your income didnt double, take all that extra and stash it away. Invest heavily in dirty magazines and booze.
I've lived a few promotions back for years now, and it's sound advice, but what would I be saving for if I stash it all away.
Not sure about the dirty magazines bit (I did hear playboy was going non-nude), and I really can't tell the difference between $30 Moët and $200 Dom (or JWBlack to JWBlue) on the rare occasion I do drink, so I although I do appericate the advice that's not my arena.
Do you have an emergency fund in case one of you becomes injured and cannot work? If not, build one.
If you are renting, then buy a house and pay it off early. If not renting, pay off your mortgage and car loans, get out of any debt you have, then salt the rest of it away for retirement and/or some nice vacations on occasion.
It's a good problem to have, but all the information out there seems to be about getting out of debt, or percentage based living, and it just doesn't fit my new reality.
Sorry, I wasn't sure if actual numbers would be seen as a quote "humble brag."
Rent and Health Insurance are covered outside the take home, ownership isn't an option as we move too frequently to break even on the transaction costs of buying and selling.
We are doubling from $5,000/month take home to $10,000/ month take home (and it'll double again in a couple of years).
Our two young kids have zero college savings (I guess that's a starting point, although my partner and I were given nothing by our parents for college so we aren't sure we want to help our kids, we can afford to, but we just aren't sure how that will affect their path).
Savings outside of 401(k) makes up a years expenses, and we are vested in a defined benefit retirement plan that if it remains solvent would provide more than we take home now.
Consider:
A fund for new vehicles, for which you could pay cash when you need to buy.
A fund for each kid. It could be structured so that it could be used for college or anything else. I do not buy the idea that paying for a child's education will necessarily ensure he will be lazy and goof off. You can certainly make it clear what your expectations are concerning grades, graduation in four years, and what the child will need to contribute. I suspect that, barring a catastrophe, your financial situation will limit need based grants and aid for your kids. On the other hand, I suspect that it is likely they will do well academically and perhaps get merit aid. The debt that people are going into for college now is astronomical, especially if graduate school is in the future. Having a six digit education debt certainly can affect a child's path.
Investing outside the 401K. Choose something conservative and let it grow.
Maximize 401 K contributions. Open a 529 savings plan for each child, and contribute the max for each child each year. If you have a health plan that allows you to have an HSA account, open that too and contribute the max to it annually - these are all tax deferred accounts.
Do you have enough disability and life insurance? Disability equal to current income, life insurance ten times current income?
I understand that you don't want to buy a house because you move too often to make it financially feasible. HOWEVER, you are missing out on a big tax deduction, and you're not in the housing market, which historically is a way that people have built wealth. Is there a place that you like to vacation, where you think that you might want to have a retirement home someday? You could consider buying something low maintenance there, and renting it out. Or you could buy a low-maintenance home where you are currently living, and turn it into a rental property when you next move. You could buy a home with a 15 yr mortgage. The first few years, when you are living in it, your payment is largely interest = big deduction. Later on, after you move, it's a rental home - pays off the mortgage. You'd have to have a good property management company. A friend designs his leases for a far away home to have slightly DECREASING rent each year that the tenant stays, so that they will stay longer, so he has less turnover and less maintenance - works very well for him. Eventually, he will move into the retirement home - then it becomes his primary residence, and he can sell it taking advantage of the tax deduction.
Before we started our rental property business (and we own all the rental properties outright), we had a FIVE YEAR emergency fund in savings, because we were dependent upon a single breadwinner. Once we had the second business, with a very regular income stream, we slowly drew down that fund, rolling it into the rental property business for more income, since we now had security if the breadwinner stopped bringing home income.
After you've got all these bases covered, I'd say it's time to have more fun!
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