Would love your opinion, feedback, etc. about my savings' strategy. (funds, HSA)

[kutra11]

Hi:

My wife and I are in or mid-thirties with a complete family (have a seven-year old). We are in IT and each of us earn six-figure salaries. I think we are careful about our money-management, but would like to have your opinion and see if there are things we could improve.


Savings

• We always max our 401Ks (Traditional, but mostly Roth), IRAs (Traditional and Roth) and HSAs. We are 30 years from retirement but don't plan to work for that long.
• We get the employer match for our 401Ks and HSA.
• We contribute to our son's 529 (monthly contribution). Given the projection, we will touch the max allowed way before we need to start withdrawing for college.
• We have a healthy chunk of our money invested in equities that we don't plan to touch until 20-25 years from now (and that too, only if required).
• We maintain a savings account with up to three-four months of monthly expenditure.

Spending

• We pay all our credit cards on time and in full every month.
• The only loan we have is our mortgage that I expect to pay off in the next 20 years or so. The current monthly PITI is 13% of our combined gross income.
• We are not frugal in our spending habits; we spend money on eating out, socializing with friends, things that make life easier, as well as hire help to lighten up our chores that allow us to spend time with the family and pursue individual interests.
• Our biggest spend is on our passion for international travel. We make at least two foreign trips every year.
• We do not anticipate having to spend any huge chunk of money on a house, car, remodeling, etc. in the next three-five years; can't predict for anything beyond that!

So here's what has prompted me to post here... ...


Until last year, after saving to retirement accounts (401Ks and IRAs) and 529, and spending, we used to have money left over each month to add to our post-tax savings account. But starting this year, every month, we have started adding to my wife's HSA account (her company started HSA this year) and have also started paying more money towards the principal on my mortgage. We are doing this without cutting costs anywhere so as a result of this, we hardly have anything left over to add to our post-tax savings account.

1. Would you consider this a prudent move where we are adding to our retirement accounts (401Ks and IRAs), HSA and 529 diligently every month, but not adding to our post-tax savings account?
2. Are there any suggestions to improve our financial plan on other fronts?

Thanks,
K

[VJP]

I would skip paying extra on the m ortgage and build post tax equities. This is what i do anyway, and your entire situation is very similar to mine, sans the kid. This post tax equitable account serves as the slush fund for new cars, airline tickets, emergencies, etc.

[mysticaltyger]

Originally Posted by VJP

I would skip paying extra on the m ortgage and build post tax equities. This is what i do anyway, and your entire situation is very similar to mine, sans the kid. This post tax equitable account serves as the slush fund for new cars, airline tickets, emergencies, etc.

I completely agree with the above. 3-4 months expenses/salary is not enough to have in a savings account, especially at your income level. It needs to be at 6 months expenses at a minimum...preferably a year's worth.

[kutra11]

Originally Posted by mysticaltyger

I completely agree with the above. 3-4 months expenses/salary is not enough to have in a savings account, especially at your income level. It needs to be at 6 months expenses at a minimum...preferably a year's worth.

Thanks. But I can always dip into my equities if I needed money badly. I listed this in the Savings section: "We have a healthy chunk of our money invested in equities that we don't plan to touch until 20-25 years from now (and that too, only if required)." This is all post-tax. What do I gain by reducing the extra payment on my mortgage in anticipation of an event that may or may not happen?

Originally Posted by VJP

I would skip paying extra on the m ortgage and build post tax equities. This is what i do anyway, and your entire situation is very similar to mine, sans the kid. This post tax equitable account serves as the slush fund for new cars, airline tickets, emergencies, etc.

Thanks. The money that will be used for emergencies or big expenditure (down payment on cars, houses... ...none of which is expected in the next few years) is what resides in my post-tax savings account. Worst-case scenario where I need money for an emergency, I can always liquidate a portion of my post-tax equities to get access to more money... ...I have a healthy chunk in there.

The money that we spend on groceries, paying bills, foreign travel (yes, I consider that a need too! :-)), eating out, socializing with friends, etc. is what constitutes my monthly expenditure account (based on our take-home pay) which I have not listed here at all. Previoulsy, I used to have sufficient money left over that I used to then transfer over to my savings account. This is the transfer that is not happening recently. Is that clear or am I being confusing?

[shamrock847]

The one change I would make is instead of paying extra on the mortgage principal, I'd put that money into your taxable investment account.

The money in the investment account is easily accessible if you have an emergency or if you need a major home repair, car, etc in the next few years. When you use it to pay down the mortgage it is locked up in the house unless you sell or take out equity.

With mortgage rates so low, the savings from paying it down early are likely less than what you would gain if it was invested. Of course, investing it is riskier so that can be a matter of personal comfort levels.

If your goal is to retire early, perhaps paying down the mortgage faster makes sense, but otherwise I would invest the extra money.

Also, if I was in your situation, I'd want to have more than 3-4 months expenses in cash on hand. While it is true you could dip in to your investment accounts in an emergency, you may not want to do that because the market could be down at the same time you lose a job and need those emergency funds, as happened to many people in 2008-2009. You'd have to balance this against what you lose by keeping money in cash vs. invested.

One thing you didn't mention was insurance. I'd want to make sure I had enough to make up for losing one income as well as the extra expenses being a single parent would entail. To take things a step further, you may want to look in to long term care insurance since it is very cheap when you are in your 30s and healthy.

[mysticaltyger]

Originally Posted by kutra11

Thanks. But I can always dip into my equities if I needed money badly. I listed this in the Savings section: "We have a healthy chunk of our money invested in equities that we don't plan to touch until 20-25 years from now (and that too, only if required)." This is all post-tax. What do I gain by reducing the extra payment on my mortgage in anticipation of an event that may or may not happen?

You're contradicting yourself. You can't say you don't plan on touching money for 20-25 years on the one hand and then say "I'll dip into my equity money if I need it badly". Did you forget what happened in 2008/2009?. It's Murphy's Law...you're most likely to need it badly at the worst possible time when the market is down.

[kutra11]

Originally Posted by mysticaltyger

You're contradicting yourself. You can't say you don't plan on touching money for 20-25 years on the one hand and then say "I'll dip into my equity money if I need it badly". Did you forget what happened in 2008/2009?. It's Murphy's Law...you're most likely to need it badly at the worst possible time when the market is down.

Thanks again for your reply. It's not contradicting... ...it would have to be the absolutely worst-case scenario. A worst-case scenario where both -- me and my wife have to lose our jobs at the same time... ...highly unlikely given how our professional career has been so far. My wife and I are in professions and companies that are not really affected as much by recessions. We have gone through two recessions, and while I know that every recession is unlike the previous one, we do not anticipate losing our jobs at the same time or being unemployed for more than two-three months. That's a calculated risk (if that's what it's called) we are comfortable taking. And anyway, we would be able to pull through on just one person's salary as well.

[LordSquidworth]

Originally Posted by kutra11

Thanks. But I can always dip into my equities if I needed money badly. I listed this in the Savings section: "We have a healthy chunk of our money invested in equities that we don't plan to touch until 20-25 years from now (and that too, only if required)." This is all post-tax. What do I gain by reducing the extra payment on my mortgage in anticipation of an event that may or may not happen?



Thanks. The money that will be used for emergencies or big expenditure (down payment on cars, houses... ...none of which is expected in the next few years) is what resides in my post-tax savings account. Worst-case scenario where I need money for an emergency, I can always liquidate a portion of my post-tax equities to get access to more money... ...I have a healthy chunk in there.

The money that we spend on groceries, paying bills, foreign travel (yes, I consider that a need too! :-)), eating out, socializing with friends, etc. is what constitutes my monthly expenditure account (based on our take-home pay) which I have not listed here at all. Previoulsy, I used to have sufficient money left over that I used to then transfer over to my savings account. This is the transfer that is not happening recently. Is that clear or am I being confusing?

What's the mortgage interest rate?

[fatlittlepig]

hi, you answered your question in your post. you're spending too much if you don't have much savings besides what you listed at the end of the month.

Originally Posted by kutra11;

[*]We are not frugal in our spending habits

[LordSquidworth]

They're maxing a bunch of accounts, they're saving.

Just because someone doesn't want to be frugal, doesn't mean they're spending too much if they have the income. Some expect more out of life.