Please assess our financial situation; grateful for any advice :)

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Topic Author
2m2037
Posts: 203
Joined: Mon May 08, 2017 4:48 pm

Please assess our financial situation; grateful for any advice :)

Post by 2m2037 »

Hi everyone,

Stumbled upon this forum recently while wondering why the generation above keep harping on saving for the future/retirement. We've always made it a point to put money aside since starting work approx. 5-6 years ago, just never really understood why. We understood the concept of delayed gratification, but why delay? Instead of 0% pleasure now vs 100% in the future, why couldn't we do 20% now, 20% in our 30s, 20% in our 40s and so on. This thread -
viewtopic.php?f=10&t=218214 - really helped put things in perspective, and was the main reason we signed up. We figure there's a ton of wisdom floating around and would be grateful for any advice on what we should do/avoid moving forward. Let us know if more information is required to assess the full picture.

General background
Emergency funds: Yes - 6 months of total current expenses in a joint savings account yielding 1% interest
Debt: None. Considering financing a 30K car early next year if we feel financially comfortable after our wedding at the end of this year. We know this isn't a BH-logical thing to do, but how bad an idea is it? We both really want something we regard as a luxury car.
Tax Filing Status: Single for 2017
Tax Rate: 28% Federal, 6.5% State
State of Residence: CA
Age: Him 30 & Her 27
Desired Asset allocation: 90% stocks / 10% bonds (or should we follow the 3-fund theory?)
Desired International allocation: 50%

Other information
Living and working in the SF Bay Area on a temp work visa for the past 2 years (undecided if we should/can get a green card). Before this we were both living and working in Asia for 3 years.
His annual gross income: $95K (before ESPP/RSUs/bonus)
Her annual gross income: $95K (before ESPP/RSUs/bonus)
Updated 5/15: His RSU: $12,500 annually (gross estimated)
Updated 5/15: His ESPP: $30,000 annually (gross estimated)
Updated 5/15: Her bonus: $5,000 (gross estimated)

Monthly rent for a 1br/1ba: $2,000
1 car fully paid for
1 car on a prepaid lease (expires March 2019). This works out to be approx $7K over 3 years. It is an EV and we get free charging at work and at home, so the only other costs are registration and insurance.
Wedding expenses at the end of the year budgeted for $15-$20K in total
He has approx USD15K in a 50/50 mix of reits/cash in his home country that could be used for the wedding, which is otherwise not touched and yields approx 4% per year.
Updated 5/15: He plans to add $1,000 to investments every month. Both plan to put $1,350 aside into a savings account each month as we have just reached out e-fund target. Any ideas or suggestions where to direct these funds to?

Current retirement assets
Taxable
$5,000 cash (for investing – do not include emergency funds) with a plan to add $1,000 monthly. Currently this $5,000 is a mix of S&P500 ETF and random stocks in Robinhood.

His 401k - $6,000 current balance
31% FID INTL INDEX PR (FSIVX) (0.08% expense ratio)
30% VANG MIDCAP IDX ADM (VIMAX) (0.06% expense ratio)
20% FID 500 INDEX PR (FUSVX) (0.045% expense ratio)
10% VANG TARGET RET INC (VTINX) (0.13% expense ratio)
9% VANG TOT BD MKT ADM (VBTLX) (0.05% expense ratio)
I currently contribute 4% and my employer contributes 2%. This is the company's max match. I'm not sure I should contribute more as we haven't decided whether we will spend the rest of our life here, or retire here.

She has personal savings of approx $10K.

No other assets i.e. She does not have a 401K, we both do not have a Roth IRA, no 403b etc.

What should our next move be? All suggestions and advice would be much appreciated.
Last edited by 2m2037 on Mon May 15, 2017 5:48 pm, edited 3 times in total.
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: Please assess our financial situation; grateful for any advice :)

Post by nedsaid »

2m2037 wrote:Hi everyone,

Stumbled upon this forum recently while wondering why the generation above keep harping on saving for the future/retirement. We've always made it a point to put money aside since starting work approx. 5-6 years ago, just never really understood why. We understood the concept of delayed gratification, but why delay? Instead of 0% pleasure now vs 100% in the future, why couldn't we do 20% now, 20% in our 30s, 20% in our 40s and so on. This thread -
viewtopic.php?f=10&t=218214 - really helped put things in perspective, and was the main reason we signed up. We figure there's a ton of wisdom floating around and would be grateful for any advice on what we should do/avoid moving forward. Let us know if more information is required to assess the full picture.

Nedsaid: The reason for putting money aside is at least two fold. First, it is a bulwark against emergencies. Growing up, our families finances were lean but my folks had money to do things like hire lawyers when needed. Secondly, it gives you investment capital. Kind of nice when an opportunity comes up and you actually have enough money to take advantage of it.

General background
Emergency funds: Yes - 6 months of total current expenses in a joint savings account yielding 1% interest

Nedsaid: Great job. Precisely what I recommend. Build that to a year by the time you reach 50.

Debt: None. Considering financing a 30K car early next year if we feel financially comfortable after our wedding at the end of this year. We know this isn't a BH-logical thing to do, but how bad an idea is it? We both really want something we regard as a luxury car.

Nedsaid: The wealthy people I knew lived in nice houses and drove non-descript cars. Probably a new Toyota Camry, something like that would be as much as you need. Couple schools of thought that work well. Buy new and own for a long time. Buy used, maybe three years old, let somebody else take the depreciation, put some money in it to get maintenance up to date. What kills you financially is buy every three years and trade in. I would love to own a luxury car but it is more important to build wealth and be able to retire.

It is the old wants and needs thing. We all want the lifestyle of the rich and famous. Luxury cars also are produced in smaller runs and certain parts are harder to come by when the car gets older. You are buying a white elephant. Higher insurance costs, higher depreciation, more expensive to maintain because of the parts issue.

Don't get caught in the mentality of driving luxury cars and living in apartments. That is a road to nowhere.


Tax Filing Status: Single for 2017
Tax Rate: 28% Federal, 6.5% State
State of Residence: CA
Age: Him 30 & Her 27
Desired Asset allocation: 90% stocks / 10% bonds (or should we follow the 3-fund theory?)
Desired International allocation: 50%

Other information
Living and working in the SF Bay Area on a temp work visa for the past 2 years (undecided if we should/can get a green card). Before this we were both living and working in Asia for 3 years.
His annual gross income: $95K (before ESPP/RSUs/bonus)
Her annual gross income: $95K (before ESPP/RSUs/bonus)
Monthly rent for a 1br/1ba: $2,000
Nedsaid: Hint. Maybe you should save for a house down payment. Someday you might live somewhere where housing is cheaper than the bay area.
1 car fully paid for and 1 car on a prepaid lease (expires March 2019)
Nedsaid: Work the numbers on leasing. It seems like an inefficient way to get transportation. A lot of folks don't recommend it.
Wedding expenses at the end of the year budgeted for $15-$20K in total
Nedsaid: In todays world, these are not unreasonable wedding expenses. Good job having saved up for that.
He has approx USD15K in a 50/50 mix of reits/cash in his home country that could be used for the wedding, which is otherwise not touched and yields approx 4% per year.

Current retirement assets
Taxable
$5,000 cash (for investing – do not include emergency funds) with a plan to add $1,000 monthly. Currently this $5,000 is a mix of S&P500 ETF and random stocks in Robinhood.

His 401k - $6,000 current balance
31% FID INTL INDEX PR (FSIVX) (0.08% expense ratio)
30% VANG MIDCAP IDX ADM (VIMAX) (0.06% expense ratio)
20% FID 500 INDEX PR (FUSVX) (0.045% expense ratio)
10% VANG TARGET RET INC (VTINX) (0.13% expense ratio)
9% VANG TOT BD MKT ADM (VBTLX) (0.05% expense ratio)
I currently contribute 4% and my employer contributes 2%. This is the company's max match. I'm not sure I should contribute more as we haven't decided whether we will spend the rest of our life here, or retire here.

Nedsaid: With such a small balance in the 401k, why not put it all in a Target Date Retirement Fund using his projected retirement date? What you have looks okay. Won't quarrel with that.

She has personal savings of approx $10K.

No other assets i.e. She does not have a 401K, we both do not have a Roth IRA, no 403b etc.

What should our next move be? All suggestions and advice would be much appreciated.

Nedsaid: Save, Save, Save.
A fool and his money are good for business.
Dottie57
Posts: 12379
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Please assess our financial situation; grateful for any advice :)

Post by Dottie57 »

Again save. You can't get to a decent retirement balance if you spend most of your income instead of not spending to invest.
palekadk
Posts: 5
Joined: Mon May 04, 2015 12:23 am

Re: Please assess our financial situation; grateful for any advice :)

Post by palekadk »

My wife and I are close to retirement. Over 30 years as government workers and have always saved for the future.
One thing we always tried to balance was living life (frugal vacations, weekend hikes, bag lunches, etc) and saving.
While not simple thru planning and perseverance you will make it. I drove my wife crazy with monthly budget and financial meetings but it will pay off. Good luck
BanditKing
Posts: 631
Joined: Tue Oct 29, 2013 11:11 pm

Re: Please assess our financial situation; grateful for any advice :)

Post by BanditKing »

If you are fixated on a "luxury" car, pick up a 3 year old Certified Used Lexus or Acura. No need to get new unless used prices are on par with new ones (which in some markets, the used car selection is very poor).

That said, why do you need a "luxury" car? Unless you routinely travel by car (for work - not just commuting, or roadtripping vacation), the additional comfy-level isn't really going to be appreciated.

As someone who has twice, before becoming a Boglehead, purchased "luxury" cars new (an infiniti and a lincoln), it was really a waste in retrospect. Next time I get a Toyota. The depreciation on my Lincoln was awful.

401k looks fine, although I'd argue Target Retirement might be easier at this point. You should save more into your 401k if you can afford it - it's pre-tax. Even if you leave the country, it's still yours.

Best advise, SAVE SAVE SAVE SAVE. Don't get a replacement car until you need to, and take into account you'll have to address your lease when it comes up - either trading in and getting a different vehicle, or buying it.

Just save. Best thing you can do at your young age.
icefr
Posts: 613
Joined: Sun Apr 17, 2011 10:50 am

Re: Please assess our financial situation; grateful for any advice :)

Post by icefr »

When is your wedding date? If it is in 2017, then you will need to file your taxes as Married for 2017 even if you marry on December 31st.

How much do your RSUs/ESPP/bonus usually add up to? How much do you plan to add to investments this year?
venkman
Posts: 1338
Joined: Tue Mar 14, 2017 10:33 pm

Re: Please assess our financial situation; grateful for any advice :)

Post by venkman »

On the one hand, I don't think you're *wrong* to want a nice car, especially if you can afford it. And you're only talking about $30k; it's not like you want to blow all your money on a Ferrari.

On the other hand, this:
Taylor Larimore wrote:
The $1,124,176 Car.

One of the easiest ways to save money is buying an inexpensive car. I'll explain:

The automobile industry spends billions of dollars each year (General Motors alone spends over $3.4 Billion annually) in their marketing attempts to sell us more car than we need. We forget that a car is primarily to get from point A to point B. Nearly all new cars do that in reasonable safety and comfort.

The savings from buying a less expensive car are enormous. For example, Edmonds give the estimated five-year True Cost to Own of automobiles sold in the United States. Using Edmonds, I compared The True Cost to Own of a new 2017 BMW 340 4-door sedan with a new 2017 Toyota Corolla 4-door sedan (a Toyota similar to one I happily owned). The results are shocking.

The BMW sedan costs $51,467 with a 5-year True Cost to Own of $59,424.

The Toyota Corolla sedan costs $18,628 with a 5-year True Cost to Own of $24,592.

Buying the Toyota saves $34,832 ($59,424 -$24,592) in five years or approximately $4,918 per year.

If, instead of buying a fancier car, you invest your $4,918 annual savings in a Roth IRA at 7% for 40 years (age 25-65) You will have $1,124,176.00 tax-free for your retirement.

Think about it.

Best wishes.
Taylor
EvelynTroy
Posts: 564
Joined: Sat Jun 07, 2008 8:35 am

Re: Please assess our financial situation; grateful for any advice :)

Post by EvelynTroy »

2m2037-
You are absolutely correct about the wisdom offered at bogelheads.org - its simply staggering the help and support you can receive on whatever financial / investing topic you could possibly want or need.

I'm in no way a financial expert - retired 3 yrs. ago, highest yrly. salary about $76K, no inheiritance, parents never graduated high school, etc. - I'm now pleasantly astonished at the amount of money I have. And yes, I've had the certified used Lexus LS-400, I take 3 International trips a yr. Have what I consider a nice home paid for - in short I have what I need - I won the game and do not have to take much risk in my portfolio.

Here is what I suggest -
Print and read multiple times this short booklet - https://www.etf.com/docs/IfYouCan.pdf
Dr. Bernstein recommends in the booklet to read the book, "The Millionaire Next Door" Its probably available at your library.
Dr. Bernstein calls this book - "the most important book you'll ever read, because it points out there's an inverse correlation between spending and saving." He also notes, "...if this book doesn't scare your spending habits straight nothing will."

This interview with Dr. Bernstein is also informative - he talks about the booklet above:
http://www.ibtimes.com/investing-advice ... at-2116914

There's enough wisdom and guidance in this booklet to make you a millionaire over time - if you tackle the 5 hurdles he outlines.

In my opinion having taken the time to use the boglehead format for asking your questions - you now have a helpful document for understanding your financial situation - what you have, don't have, plans, etc.

As you put together your plans and make decisions that will impact your future, maybe a thought: Do you want to act rich or be rich?

Good luck and congratulations on your accomplishments to date - you can be proud that you and your wife have such well paying careers. Sounds like you have a bright future ahead of you.
Evelyn
SimplicityNow
Posts: 605
Joined: Fri Aug 05, 2016 10:31 am

Re: Please assess our financial situation; grateful for any advice :)

Post by SimplicityNow »

You have received plenty of good advice but I'd just like to add about the the purchase of a luxury car.

Unless you are a car enthusiast then in my mind there are two reasons people purchase a "luxury' car.

1) They feel they have earned it.

2) They are keeping up with the Jones'.

Now of course it is your money and if you want it you could certainly get it but the reason why is more important then the actual dollars spent.

My personal example:

We never purchased a luxury car. Usually they were Hondas and they were never the top end Hondas. We kept them until the cost of repairs and maintenance rival that of a car payment. Although we could easily afford more expensive cars we never felt that was a priority. Sure once in a while I'd see a nice BMW driving down the block and feel a tad envious but never enough to consider one.

Then when our oldest was going to college I gave up my old car and I needed to purchase a new one. She was attending a prestigious private college and thought it would be nice to celebrate by upgrading my ride and so I bought a Lexus (not even a real luxury car). Although it is a good looking car with a plush ride, (and I have a commute of 2 hours every day) in retrospect I would gave been happier with a less expensive car.

The good thing is that it was a one time splurge. My kids cars are 10 and 17 years old. My wife's car is over 12 years old. None of them want a new car.
In fact when I mentioned replacing my oldest's car the response I got was "Why? I like my car and it runs fine". Smart kid :)
User avatar
BL
Posts: 9874
Joined: Sun Mar 01, 2009 1:28 pm

Re: Please assess our financial situation; grateful for any advice :)

Post by BL »

EvelynTroy wrote:

Here is what I suggest -
Print and read multiple times this short booklet - https://www.etf.com/docs/IfYouCan.pdf
Dr. Bernstein recommends in the booklet to read the book, "The Millionaire Next Door" Its probably available at your library.
Dr. Bernstein calls this book - "the most important book you'll ever read, because it points out there's an inverse correlation between spending and saving." He also notes, "...if this book doesn't scare your spending habits straight nothing will."

This interview with Dr. Bernstein is also informative - he talks about the booklet above:
http://www.ibtimes.com/investing-advice ... at-2116914

There's enough wisdom and guidance in this booklet to make you a millionaire over time - if you tackle the 5 hurdles he outlines.
Thanks for the interview link. I enjoyed reading it. Love that booklet. So much good information packed in 16 pages!
finite_difference
Posts: 3633
Joined: Thu Jul 09, 2015 7:00 pm

Re: Please assess our financial situation; grateful for any advice :)

Post by finite_difference »

A slightly different priority here:

1. Get your Greencards.
2. Save.
3. Take full advantage of tax-advantaged accounts (Traditional 401k and Roth IRA.)
4. I wouldn't worry about buying a house as much as 1-3 right now.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
Lafder
Posts: 4127
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Please assess our financial situation; grateful for any advice :)

Post by Lafder »

To clarify a few things:

"Desired Asset allocation: 90% stocks / 10% bonds (or should we follow the 3-fund theory?)
Desired International allocation: 50%"

A 3 fund portfolio is made up of US and International stocks, and bonds. So your statement of 90% stocks can be done with a 3 fnd portfolio. And your wish for 50% International would make it:

45% US stocks, 45% International stocks, 10% bonds

Note that there are some recs for a minimum of 20% bonds. But there are many who go 0-10%.

Your desire for 50% of your stocks being International is on the high side of a usually supported range of 0-50%. Bogle and Buffett have supported 0% International stocks. Vanguard raised their recs to 30-50% International stocks. So you are within that range. Only time will tell.

If you pick an all in one fund, it will chose % International for you.

Regarding your 401k choices:

His 401k - $6,000 current balance

10% VANG TARGET RET INC (VTINX) (0.13% expense ratio)

Using this all in one fund mixed with the other individual funds may mean that you are not understanding all in one funds. The all in one funds are made up of other funds that are rebalanced for you to a predetermined AA. You have chosen the Target retirement fund which is geared to be the only needed fund for a person of retirement age. It is 70% bonds and 30% stocks.

If you want a 90% stock, 10% bond all in one fund, you could choose (if available) such as the Target Date 2050 fund that is 90% stocks, and 10% bonds. It is made up of the subfunds including total US Stock, Total International Stock, US bonds, International bonds.

It is easier to have just the individual funds, or just the all in one funds. Having both makes calculating AA harder.

Note having all in one funds in one account and sub funds in another can make sense for simplicity of lower balance accounts. Having both in the same account is the redundancy I am saying can be avoided.

Best wishes,
Lafer
User avatar
Meg77
Posts: 2835
Joined: Fri May 22, 2009 1:09 pm
Location: Dallas, TX

Re: Please assess our financial situation; grateful for any advice :)

Post by Meg77 »

You guys are off to a great start!

1. It's great that you have 6 months of expenses in a savings account. Try not to touch this for "wants" such as a honeymoon, car or furniture. You may have real "needs" arise over the next few years - major moves, a baby, possibly even a house that would be a better use of that cash and additional savings.

2. It's great that you have no consumer debt. KEEP IT THAT WAY! INDEFINITELY! If you want a luxury car, or any car, save up and pay cash for it. If you're not willing to part with $30K of hard earned money that's sitting in the bank, that's a sign that you don't really want a $30K car that much. Buying on debt seems smart on paper because you "can earn more in the stock market" or "the rate is lower than inflation" but in actuality borrowing for purchases like that simply encourages and enables people to buy more car than they can afford or would otherwise spend. That's why car loans exist.

PS - why do you want/need 2 cars in the Bay area? Don't most people make do with no cars? I guess if you're not in the city and don't have access to public transit you might need a car...but it looks like you guys work together based on the salaries. If that's the case and you can carpool, I'd really advise against getting a second car. That is a huge monthly expense when you factor in depreciation, insurance, etc. - even if you don't finance it.

3. Your asset allocation looks great (and you can achieve it WITH the three fund portfolio), but until you have well over 6 figures invested, your savings rate matters much more than your asset allocation. So don't get caught up in the weeds on that. Just invest, and keep investing, every month. It will pile up more quickly than you anticipate, especially on your incomes.

4. If I were you I'd set 401k contributions for both of you at just enough to get the employer match, then max out backdoor Roth IRAs, then max out an HSA with any leftover funds. This presumes you are planning to stay in the US though; I'm not sure how/whether those types of US tax advantaged accounts benefit you if you are not a citizen and/or don't live in the US any longer. Might be something to seek some tax advice on. You can take contributions back out of Roth IRAs anyway without taxes or penalties, so even if you move and liquidate those you wouldn't be out much other than paying income tax on any of the earnings in those accounts.

Given your citizenship uncertainty though it's probably fine in your case to skip this step for now and just invest in taxable accounts and save cash until you solidify your plans.

5. With any leftover funds (or instead of #4 if you choose), just pile up cash for now. You really can't have too much at this stage of life (or any stage frankly). Once you have more than 1 year of expenses in cash, start investing in a taxable brokerage account.

6. Don't get sold life insurance; you don't need it until you have kids or *possibly* when you buy a home that neither of you could afford on your own if the other were to die. When you get it, stick to level term - NOT WHOLE LIFE.

Good luck, and congratulations on your marriage!
"An investment in knowledge pays the best interest." - Benjamin Franklin
User avatar
nedsaid
Posts: 19275
Joined: Fri Nov 23, 2012 11:33 am

Re: Please assess our financial situation; grateful for any advice :)

Post by nedsaid »

What I am trying to say is to prioritize your spending so that you can get what you really want out of life. If you and future spouse really, really want a luxury car and it would give you some measure of happiness, it would be worth consideration. Do you want a luxury car because you want it? Or is it to out do your peers, to attain prestige?

There is an old saying about spending what you don't have to impress people you don't like. Too often, this is the case. The old keeping up with the Joneses problem.

It boils down to values. If it is something that you really want and something you really like, go for it. If it is to impress others, it will probably be a less than optimal use of your money.

Different people have different values and that is okay. To me, a car is a mode of transportation and that is about it. Don't care too much about impressing other people. Other people love nice equipment and a beautiful luxury car would give them enjoyment. If you make such a purchase, make sure it is in alignment with your values.
A fool and his money are good for business.
Topic Author
2m2037
Posts: 203
Joined: Mon May 08, 2017 4:48 pm

Re: Please assess our financial situation; grateful for any advice :)

Post by 2m2037 »

nedsaid wrote:
2m2037 wrote:Hi everyone,

Stumbled upon this forum recently while wondering why the generation above keep harping on saving for the future/retirement. We've always made it a point to put money aside since starting work approx. 5-6 years ago, just never really understood why. We understood the concept of delayed gratification, but why delay? Instead of 0% pleasure now vs 100% in the future, why couldn't we do 20% now, 20% in our 30s, 20% in our 40s and so on. This thread -
viewtopic.php?f=10&t=218214 - really helped put things in perspective, and was the main reason we signed up. We figure there's a ton of wisdom floating around and would be grateful for any advice on what we should do/avoid moving forward. Let us know if more information is required to assess the full picture.

Nedsaid: The reason for putting money aside is at least two fold. First, it is a bulwark against emergencies. Growing up, our families finances were lean but my folks had money to do things like hire lawyers when needed. Secondly, it gives you investment capital. Kind of nice when an opportunity comes up and you actually have enough money to take advantage of it.

General background
Emergency funds: Yes - 6 months of total current expenses in a joint savings account yielding 1% interest

Nedsaid: Great job. Precisely what I recommend. Build that to a year by the time you reach 50.

Debt: None. Considering financing a 30K car early next year if we feel financially comfortable after our wedding at the end of this year. We know this isn't a BH-logical thing to do, but how bad an idea is it? We both really want something we regard as a luxury car.

Nedsaid: The wealthy people I knew lived in nice houses and drove non-descript cars. Probably a new Toyota Camry, something like that would be as much as you need. Couple schools of thought that work well. Buy new and own for a long time. Buy used, maybe three years old, let somebody else take the depreciation, put some money in it to get maintenance up to date. What kills you financially is buy every three years and trade in. I would love to own a luxury car but it is more important to build wealth and be able to retire.

It is the old wants and needs thing. We all want the lifestyle of the rich and famous. Luxury cars also are produced in smaller runs and certain parts are harder to come by when the car gets older. You are buying a white elephant. Higher insurance costs, higher depreciation, more expensive to maintain because of the parts issue.

Don't get caught in the mentality of driving luxury cars and living in apartments. That is a road to nowhere.


Tax Filing Status: Single for 2017
Tax Rate: 28% Federal, 6.5% State
State of Residence: CA
Age: Him 30 & Her 27
Desired Asset allocation: 90% stocks / 10% bonds (or should we follow the 3-fund theory?)
Desired International allocation: 50%

Other information
Living and working in the SF Bay Area on a temp work visa for the past 2 years (undecided if we should/can get a green card). Before this we were both living and working in Asia for 3 years.
His annual gross income: $95K (before ESPP/RSUs/bonus)
Her annual gross income: $95K (before ESPP/RSUs/bonus)
Monthly rent for a 1br/1ba: $2,000
Nedsaid: Hint. Maybe you should save for a house down payment. Someday you might live somewhere where housing is cheaper than the bay area.
1 car fully paid for and 1 car on a prepaid lease (expires March 2019)
Nedsaid: Work the numbers on leasing. It seems like an inefficient way to get transportation. A lot of folks don't recommend it.
Wedding expenses at the end of the year budgeted for $15-$20K in total
Nedsaid: In todays world, these are not unreasonable wedding expenses. Good job having saved up for that.
He has approx USD15K in a 50/50 mix of reits/cash in his home country that could be used for the wedding, which is otherwise not touched and yields approx 4% per year.

Current retirement assets
Taxable
$5,000 cash (for investing – do not include emergency funds) with a plan to add $1,000 monthly. Currently this $5,000 is a mix of S&P500 ETF and random stocks in Robinhood.

His 401k - $6,000 current balance
31% FID INTL INDEX PR (FSIVX) (0.08% expense ratio)
30% VANG MIDCAP IDX ADM (VIMAX) (0.06% expense ratio)
20% FID 500 INDEX PR (FUSVX) (0.045% expense ratio)
10% VANG TARGET RET INC (VTINX) (0.13% expense ratio)
9% VANG TOT BD MKT ADM (VBTLX) (0.05% expense ratio)
I currently contribute 4% and my employer contributes 2%. This is the company's max match. I'm not sure I should contribute more as we haven't decided whether we will spend the rest of our life here, or retire here.

Nedsaid: With such a small balance in the 401k, why not put it all in a Target Date Retirement Fund using his projected retirement date? What you have looks okay. Won't quarrel with that.

She has personal savings of approx $10K.

No other assets i.e. She does not have a 401K, we both do not have a Roth IRA, no 403b etc.

What should our next move be? All suggestions and advice would be much appreciated.

Nedsaid: Save, Save, Save.
Thanks Nedsaid. Your responses as well as others are moving us into the camp of saving harder and putting off the luxury car purchase for a while. Re leasing: it made sense to lease since the car we replaced the lease with was incurring $1K annual depreciation, $2K gas costs, $300 in average maintenance costs. This worked out to be approx $10K over 3 years. Leasing an EV costs $7K over 3 years, we don't pay for gas/electricity, and maintenance is free throughout the life of the lease. In addition we have a new car warranty and all the new tech that comes with a 2016 vehicle.
Dottie57 wrote:Again save. You can't get to a decent retirement balance if you spend most of your income instead of not spending to invest.
Thanks - this is something we know, but need to be told and reminded. Glad to have found this forum and will be browsing regularly to keep ourselves grounded and focused in the long run.
palekadk wrote:My wife and I are close to retirement. Over 30 years as government workers and have always saved for the future.
One thing we always tried to balance was living life (frugal vacations, weekend hikes, bag lunches, etc) and saving.
While not simple thru planning and perseverance you will make it. I drove my wife crazy with monthly budget and financial meetings but it will pay off. Good luck
What is this "future" you envision? We are probably going to go down the same path you did, and are currently at the beginning, but can't quite see the end from where we are. We know the math - whatever we don't spend now, we can spend in the future. We're trying to figure out what are things we won't enjoy as much in our 50s or 60s as we might now e.g. EDM festivals
BanditKing wrote:If you are fixated on a "luxury" car, pick up a 3 year old Certified Used Lexus or Acura. No need to get new unless used prices are on par with new ones (which in some markets, the used car selection is very poor).

That said, why do you need a "luxury" car? Unless you routinely travel by car (for work - not just commuting, or roadtripping vacation), the additional comfy-level isn't really going to be appreciated.

As someone who has twice, before becoming a Boglehead, purchased "luxury" cars new (an infiniti and a lincoln), it was really a waste in retrospect. Next time I get a Toyota. The depreciation on my Lincoln was awful.

401k looks fine, although I'd argue Target Retirement might be easier at this point. You should save more into your 401k if you can afford it - it's pre-tax. Even if you leave the country, it's still yours.

Best advise, SAVE SAVE SAVE SAVE. Don't get a replacement car until you need to, and take into account you'll have to address your lease when it comes up - either trading in and getting a different vehicle, or buying it.

Just save. Best thing you can do at your young age.
We definitely are not going down the brand new route. Maybe not even CPO. We might get a 5 or 6 year old european vehicle through a private sale and buy an extended warranty. We acknowledge that we don't need a luxury vehicle (who does?), but it's something we value more than say, a 60" tv with the best surround sound system. But like mentioned above, we might put this off for another few years!

Ok, second vote for Target Retirement. We'll look into that. And also yes over the weekend we were discussing putting more into 401k. Thanks!
icefr wrote:When is your wedding date? If it is in 2017, then you will need to file your taxes as Married for 2017 even if you marry on December 31st.

How much do your RSUs/ESPP/bonus usually add up to? How much do you plan to add to investments this year?
It will be in November. Thanks for pointing that out, we didn't know. Will read up more on that.

His RSU: $12,500 annually (gross estimated)
His ESPP: $30,000 annually (gross estimated)
Her bonus: $5,000 (gross estimated)

Will add this in the first post as well. Didn't realize it was so much! RSU and ESPP have been sitting in the accounts untouched. We did not look at this until 5 minutes ago. He plans to add $1,000 to investments every month. Both plan to put $1,350 aside into a savings account each month as we have just reached out e-fund target. Any ideas or suggestions where to direct these funds to?
Last edited by 2m2037 on Mon May 15, 2017 5:47 pm, edited 1 time in total.
Topic Author
2m2037
Posts: 203
Joined: Mon May 08, 2017 4:48 pm

Re: Please assess our financial situation; grateful for any advice :)

Post by 2m2037 »

venkman wrote:On the one hand, I don't think you're *wrong* to want a nice car, especially if you can afford it. And you're only talking about $30k; it's not like you want to blow all your money on a Ferrari.

On the other hand, this:
Taylor Larimore wrote:
The $1,124,176 Car.

One of the easiest ways to save money is buying an inexpensive car. I'll explain:

The automobile industry spends billions of dollars each year (General Motors alone spends over $3.4 Billion annually) in their marketing attempts to sell us more car than we need. We forget that a car is primarily to get from point A to point B. Nearly all new cars do that in reasonable safety and comfort.

The savings from buying a less expensive car are enormous. For example, Edmonds give the estimated five-year True Cost to Own of automobiles sold in the United States. Using Edmonds, I compared The True Cost to Own of a new 2017 BMW 340 4-door sedan with a new 2017 Toyota Corolla 4-door sedan (a Toyota similar to one I happily owned). The results are shocking.

The BMW sedan costs $51,467 with a 5-year True Cost to Own of $59,424.

The Toyota Corolla sedan costs $18,628 with a 5-year True Cost to Own of $24,592.

Buying the Toyota saves $34,832 ($59,424 -$24,592) in five years or approximately $4,918 per year.

If, instead of buying a fancier car, you invest your $4,918 annual savings in a Roth IRA at 7% for 40 years (age 25-65) You will have $1,124,176.00 tax-free for your retirement.

Think about it.

Best wishes.
Taylor
Exactly. We were looking to spend no more than $30K in total, but then again this will be something we re-consider every time we're about to take the plunge. At this point we are leaning slightly towards the save and invest camp.

The $1M example seems a little skewed... it assumes the difference is between a BMW 340 (highest spec'd in its series) vs a Corolla (I would compare it to a BMW 320 to be honest, or maybe even a BMW 1 series). It also assumes a buyer buys a brand new BMW over a Toyota every 5 years. But yes, one would definitely be financially better off if one chose a Toyota over a BMW (there's no disputing that!) :sharebeer
EvelynTroy wrote:2m2037-
You are absolutely correct about the wisdom offered at bogelheads.org - its simply staggering the help and support you can receive on whatever financial / investing topic you could possibly want or need.

I'm in no way a financial expert - retired 3 yrs. ago, highest yrly. salary about $76K, no inheiritance, parents never graduated high school, etc. - I'm now pleasantly astonished at the amount of money I have. And yes, I've had the certified used Lexus LS-400, I take 3 International trips a yr. Have what I consider a nice home paid for - in short I have what I need - I won the game and do not have to take much risk in my portfolio.

Here is what I suggest -
Print and read multiple times this short booklet - https://www.etf.com/docs/IfYouCan.pdf
Dr. Bernstein recommends in the booklet to read the book, "The Millionaire Next Door" Its probably available at your library.
Dr. Bernstein calls this book - "the most important book you'll ever read, because it points out there's an inverse correlation between spending and saving." He also notes, "...if this book doesn't scare your spending habits straight nothing will."

This interview with Dr. Bernstein is also informative - he talks about the booklet above:
http://www.ibtimes.com/investing-advice ... at-2116914

There's enough wisdom and guidance in this booklet to make you a millionaire over time - if you tackle the 5 hurdles he outlines.

In my opinion having taken the time to use the boglehead format for asking your questions - you now have a helpful document for understanding your financial situation - what you have, don't have, plans, etc.

As you put together your plans and make decisions that will impact your future, maybe a thought: Do you want to act rich or be rich?

Good luck and congratulations on your accomplishments to date - you can be proud that you and your wife have such well paying careers. Sounds like you have a bright future ahead of you.
Evelyn
Thanks for the link! We printed and read it once over the weekend, and will go over the various steps and books recommended in the booklet. Re: act rich or be rich - our struggle is asking why does it have to be one or another? We're trying to find a middle ground. We don't want to act rich per se, but we would like to splurge on luxuries from time to time. Some might not even consider what we want a luxury i.e. a 5-year old out of warranty vehicle :wink:
RSM wrote:You have received plenty of good advice but I'd just like to add about the the purchase of a luxury car.

Unless you are a car enthusiast then in my mind there are two reasons people purchase a "luxury' car.

1) They feel they have earned it.

2) They are keeping up with the Jones'.

Now of course it is your money and if you want it you could certainly get it but the reason why is more important then the actual dollars spent.

My personal example:

We never purchased a luxury car. Usually they were Hondas and they were never the top end Hondas. We kept them until the cost of repairs and maintenance rival that of a car payment. Although we could easily afford more expensive cars we never felt that was a priority. Sure once in a while I'd see a nice BMW driving down the block and feel a tad envious but never enough to consider one.

Then when our oldest was going to college I gave up my old car and I needed to purchase a new one. She was attending a prestigious private college and thought it would be nice to celebrate by upgrading my ride and so I bought a Lexus (not even a real luxury car). Although it is a good looking car with a plush ride, (and I have a commute of 2 hours every day) in retrospect I would gave been happier with a less expensive car.

The good thing is that it was a one time splurge. My kids cars are 10 and 17 years old. My wife's car is over 12 years old. None of them want a new car.
In fact when I mentioned replacing my oldest's car the response I got was "Why? I like my car and it runs fine". Smart kid :)
We're not car enthusiasts but we've both liked nice cars (or what we deem nice, it doesn't have to be the latest and most expensive). We sure wish we had your eldest kid's mindset! We aren't big on most other things in life, but it just so happens the one class of luxury goods we oogle over are expensive to purchase and upkeep! We don't see it as trying to keep up with our peers. In fact, we probably don't even appear to be "on par" with our peers, but it was never an issue and true friendship goes past material appearances. Congrats on your Lexus! If it means anything, a Lexus definitely makes our cut for a real luxury car! Whichever model you got would be way out of our reach and we envy you for being able to own one.
finite_difference wrote:A slightly different priority here:

1. Get your Greencards.
2. Save.
3. Take full advantage of tax-advantaged accounts (Traditional 401k and Roth IRA.)
4. I wouldn't worry about buying a house as much as 1-3 right now.
Our 75% tentative short term plan indeed :wink: Housing prices here are too high and too risky for us to want to jump both feet in right now.
tup45678
Posts: 30
Joined: Tue Aug 16, 2016 1:51 pm

Re: Please assess our financial situation; grateful for any advice :)

Post by tup45678 »

I think you're on a good path. I think you're in an interesting position compared to most people at your age and income level because the typical savings goal for the late-20s crowd is a house, but given your uncertainty about where you want to settle and the crazy Bay Area real estate market, that doesn't seem like a relevant or motivating goal for you (which is why you seem to feel a bit unsure about the rationale to keep saving money).

Also, I'd like to chime in my two cents on that possible luxury car purchase. For reference, I drive a brand-new $80k European sedan. I love it. But cars in general these days are so good, if I ever felt the need to cut costs, I would cut my luxury car before almost anything else. This is the first time in my life I've truly loved my car, but I vastly overestimated how much loving my car would impact my overall/day-to-day happiness. I'm not a car guy, but for me, it barely moves the needle. Just wanted to give you some perspective from a luxury car owner as I know they're generally frowned upon here 8-)
Topic Author
2m2037
Posts: 203
Joined: Mon May 08, 2017 4:48 pm

Re: Please assess our financial situation; grateful for any advice :)

Post by 2m2037 »

Lafder wrote:To clarify a few things:

"Desired Asset allocation: 90% stocks / 10% bonds (or should we follow the 3-fund theory?)
Desired International allocation: 50%"

A 3 fund portfolio is made up of US and International stocks, and bonds. So your statement of 90% stocks can be done with a 3 fnd portfolio. And your wish for 50% International would make it:

45% US stocks, 45% International stocks, 10% bonds

Note that there are some recs for a minimum of 20% bonds. But there are many who go 0-10%.

Your desire for 50% of your stocks being International is on the high side of a usually supported range of 0-50%. Bogle and Buffett have supported 0% International stocks. Vanguard raised their recs to 30-50% International stocks. So you are within that range. Only time will tell.

If you pick an all in one fund, it will chose % International for you.

Regarding your 401k choices:

His 401k - $6,000 current balance

10% VANG TARGET RET INC (VTINX) (0.13% expense ratio)

Using this all in one fund mixed with the other individual funds may mean that you are not understanding all in one funds. The all in one funds are made up of other funds that are rebalanced for you to a predetermined AA. You have chosen the Target retirement fund which is geared to be the only needed fund for a person of retirement age. It is 70% bonds and 30% stocks.

If you want a 90% stock, 10% bond all in one fund, you could choose (if available) such as the Target Date 2050 fund that is 90% stocks, and 10% bonds. It is made up of the subfunds including total US Stock, Total International Stock, US bonds, International bonds.

It is easier to have just the individual funds, or just the all in one funds. Having both makes calculating AA harder.

Note having all in one funds in one account and sub funds in another can make sense for simplicity of lower balance accounts. Having both in the same account is the redundancy I am saying can be avoided.

Best wishes,
Lafer
Ah, thanks for point that out! We'll be working through opening new accounts over the next few months and how much to allocate to each. Thanks for the tip!
Meg77 wrote:You guys are off to a great start!

1. It's great that you have 6 months of expenses in a savings account. Try not to touch this for "wants" such as a honeymoon, car or furniture. You may have real "needs" arise over the next few years - major moves, a baby, possibly even a house that would be a better use of that cash and additional savings.

2. It's great that you have no consumer debt. KEEP IT THAT WAY! INDEFINITELY! If you want a luxury car, or any car, save up and pay cash for it. If you're not willing to part with $30K of hard earned money that's sitting in the bank, that's a sign that you don't really want a $30K car that much. Buying on debt seems smart on paper because you "can earn more in the stock market" or "the rate is lower than inflation" but in actuality borrowing for purchases like that simply encourages and enables people to buy more car than they can afford or would otherwise spend. That's why car loans exist.

PS - why do you want/need 2 cars in the Bay area? Don't most people make do with no cars? I guess if you're not in the city and don't have access to public transit you might need a car...but it looks like you guys work together based on the salaries. If that's the case and you can carpool, I'd really advise against getting a second car. That is a huge monthly expense when you factor in depreciation, insurance, etc. - even if you don't finance it.

3. Your asset allocation looks great (and you can achieve it WITH the three fund portfolio), but until you have well over 6 figures invested, your savings rate matters much more than your asset allocation. So don't get caught up in the weeds on that. Just invest, and keep investing, every month. It will pile up more quickly than you anticipate, especially on your incomes.

4. If I were you I'd set 401k contributions for both of you at just enough to get the employer match, then max out backdoor Roth IRAs, then max out an HSA with any leftover funds. This presumes you are planning to stay in the US though; I'm not sure how/whether those types of US tax advantaged accounts benefit you if you are not a citizen and/or don't live in the US any longer. Might be something to seek some tax advice on. You can take contributions back out of Roth IRAs anyway without taxes or penalties, so even if you move and liquidate those you wouldn't be out much other than paying income tax on any of the earnings in those accounts.

Given your citizenship uncertainty though it's probably fine in your case to skip this step for now and just invest in taxable accounts and save cash until you solidify your plans.

5. With any leftover funds (or instead of #4 if you choose), just pile up cash for now. You really can't have too much at this stage of life (or any stage frankly). Once you have more than 1 year of expenses in cash, start investing in a taxable brokerage account.

6. Don't get sold life insurance; you don't need it until you have kids or *possibly* when you buy a home that neither of you could afford on your own if the other were to die. When you get it, stick to level term - NOT WHOLE LIFE.

Good luck, and congratulations on your marriage!
Thanks, Meg77!

1. Honeymoon, car, furniture will come out of a separate savings project. Baby, maybe but ideally not. House, maybe half, but we wouldn't think of depleting this fund unless it was literally life or death.

2. We have never entertained the thought of financing anything other than a house, but a car loan seems to make sense in some situations. Even if we could afford to pay $30K cash, it might be less risky to keep our cashflows liquid, especially if the interest rate is low. We're starting to see interest paid as a form of insurance for the immediate access to cash. We're not saying we would take a full $30K loan, but maybe decide to use cash on half and loan the other half just to play safe.

We work outside of the city and have different work schedules. We considered living on one car but ultimately decided that we value the flexibility having 2 cars bring us more than cost savings. We also pit this against owning one "luxury" car, but again flexibility won.

3. We did feel a little silly asking for advice and posting that we don't even have 5 digits in investments. Thanks for the reassurance! We're working on it! :D :D

4. 401K as advised is what we currently are doing. I don't think we'll be able to get any firm plans until our green card process starts (if it even does).

5. We hope to reach a stage where we feel like we have too much cash and I wish the same upon you! :sharebeer We currently use Robinhood as they don't charge fees on transactions, and we make pretty small trades. Can't think of any tangible disincentive for using this platform compared to a traditional brokerage either.

6. We were schooled on insurance pretty early on, and agree on this. We currently only have term policies.
nedsaid wrote:What I am trying to say is to prioritize your spending so that you can get what you really want out of life. If you and future spouse really, really want a luxury car and it would give you some measure of happiness, it would be worth consideration. Do you want a luxury car because you want it? Or is it to out do your peers, to attain prestige?

There is an old saying about spending what you don't have to impress people you don't like. Too often, this is the case. The old keeping up with the Joneses problem.

It boils down to values. If it is something that you really want and something you really like, go for it. If it is to impress others, it will probably be a less than optimal use of your money.

Different people have different values and that is okay. To me, a car is a mode of transportation and that is about it. Don't care too much about impressing other people. Other people love nice equipment and a beautiful luxury car would give them enjoyment. If you make such a purchase, make sure it is in alignment with your values.
We have asked ourselves this many times over and the main reason is really because we both really want one. We do realize it is just a want, though, after all! So in this regard we would be in the latter bucket in your example. But we'll savor the bittersweet delay of gratification a while longer... :x
tup45678 wrote:I think you're on a good path. I think you're in an interesting position compared to most people at your age and income level because the typical savings goal for the late-20s crowd is a house, but given your uncertainty about where you want to settle and the crazy Bay Area real estate market, that doesn't seem like a relevant or motivating goal for you (which is why you seem to feel a bit unsure about the rationale to keep saving money).

Also, I'd like to chime in my two cents on that possible luxury car purchase. For reference, I drive a brand-new $80k European sedan. I love it. But cars in general these days are so good, if I ever felt the need to cut costs, I would cut my luxury car before almost anything else. This is the first time in my life I've truly loved my car, but I vastly overestimated how much loving my car would impact my overall/day-to-day happiness. I'm not a car guy, but for me, it barely moves the needle. Just wanted to give you some perspective from a luxury car owner as I know they're generally frowned upon here 8-)
Not much we can reply to on this, apart from that we agree on all counts in your first paragraph, and ditto on your second. 80K european sedan... nicely optioned M550i?
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Hawaiishrimp
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Re: Please assess our financial situation; grateful for any advice :)

Post by Hawaiishrimp »

Here is why:
Image
I save and invest my money, so money can make money for me, so I don't have to make money eventually.
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