Help with young family portfolio

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Grover22
Posts: 2
Joined: Sat Jan 13, 2018 7:42 am

Help with young family portfolio

Post by Grover22 » Sat Jan 13, 2018 8:04 am

Long time lurker - first time poster...

I’m looking for some advice about my next step. I’ll admit most of the numbers I see on here are huge (it seems everyone on here has a ton of income and net worth), so I’ll provide a more modest look into financial planning.

Age - 31, married two kids
Household income - 85k - 75k for me and my wife earns 10k (she primarily stays at home with the kids)
Emergency Funds - $20k (roughly 4 months)
Taxable accounts - $13k
401k - $35k
Car loan - (12k) - I’ll be paying this off next month with our emergency funds and with roughly $1,600 in positive cash flow each month we can build the fund back quickly (just sick of it...) - rate is around 4.2%
House - 30k equity (still have 65k on mortgage) - 3.8%
No other debt

All of my investments are 80/20 - 80% total stock market index and 20% total bond fund (fidelity)

I’m currently not making any 401k salary deferrals although my employer puts in 5% each year. Just to clarify - my employer puts in 5% regardless of my deferral rate - it’s not a matching contribution, it’s a safe harbor/profit sharing contribution.

I’ve followed Dave Ramsey very closely and theoretically my next step would be to wipe out the car loan and then start funding my retirement. My wife and I will probably need a bigger house at some point and not sure if we should be saving only for that or put some money into Roth IRAs.

We have two kids (3,1) and I’m afraid to think of how expensive college will be in 15 years - not sure the best way to save for this...

I’ll admit I am really drawn to rental properties. Really like the BRRRR process at BiggerPockets where you buy a fixer upper, renovate it and then refinance the money back out to essentially have no money into the rental. Also like the income cash flow potential from rental properties (I know this isn’t everyone’s cup of tea!). I’m a pretty chill guy so tenants don’t scare me at all. Have thought about buying some rental properties in a couple of years and then refinance them when the kids go to college.

Any advice would be great!
Last edited by Grover22 on Sat Jan 13, 2018 8:38 pm, edited 4 times in total.

Beehave
Posts: 361
Joined: Mon Jun 19, 2017 12:46 pm

Re: Help with young family portfolio

Post by Beehave » Sat Jan 13, 2018 3:27 pm

I'm pretty new here and feel a bit presumptuous in saying this, but welcome to the board.

I have a couple of suggestions.

First, you should immediately get into your 401k with 5% employer contribution. This is priority #1.
Second, pay off the car loan using your surplus monthly income. Do not deplete your emergency cash to do this.
Third, consider funding Roth IRAs for yourself and spouse.

I'm no expert on real estate and others should make suggestions on specifics. But here are considerations:
- your biggest investment at your age is your career.
- if the real estate will occupy your time to the detriment of your career do not do it.
- if you may need to move for the sake of your career, think twice about whether the real estate can be managed profitably if you are far away.

I am not saying the RE is a bad idea, only that there are considerations.

Best wishes with your young family. I've been through the challenge and you sound to me like someone who will be very successful and derive great satisfaction from the experience.

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BL
Posts: 8367
Joined: Sun Mar 01, 2009 2:28 pm

Re: Help with young family portfolio

Post by BL » Sat Jan 13, 2018 4:20 pm

Grover22 wrote:
Sat Jan 13, 2018 8:04 am
Long time lurker - first time poster...

I’m looking for some advice about my next step. I’ll admit most of the numbers I see on here are huge (it seems everyone on here has a ton of income and net worth), so I’ll provide a more modest look into financial planning.

Age - 31, married two kids
Household income - 85k one or two incomes?
Emergency Funds - $20k (roughly 4 months) not a lot with 2 kids. I wouldn't pay off debt with it unless debt interest is extreme.
Taxable accounts - $13k Could be sold and placed in Roth IRAs. Roth contributions could be withdrawn tax-free and penalty-free in an emergency.
401k - $35k
Car loan - (12k) - I’ll be paying this off next month with our emergency funds and with roughly $1,600 in positive cash flow each month we can build the fund back quickly (just sick of it...) rate?
House - 30k equity (still have 65k on mortgage) rate?
No other debt

I’m currently not making any 401k salary deferrals although my employer puts in 5% each year
Try a few %. You can always discontinue if necessary. You might not even miss it. Look for low-ER index funds when available such as S&P500.

I’ve followed Dave Ramsey very closely and theoretically my next step would be to wipe out the car loan and then start funding my retirement. My wife and I will probably need a bigger house at some point and not sure if we should be saving only for that or put some money into Roth IRAs. Roth contributions can be withdrawn (not gains) if needed so no reason not to use Roth. Bigger house means bigger costs and debt!

We have two kids (3,1) and I’m afraid to think of how expensive college will be in 15 years - not sure the best way to save for this...Fund your retirement first. You cannot borrow for retirement.
I’ll admit I am really drawn to rental properties. Really like the BRRRR process at BiggerPockets where you buy a fixer upper, renovate it and then refinance the money back out to essentially have no money into the rental. Also like the income cash flow potential from rental properties (I know this isn’t everyone’s cup of tea!). I’m a pretty chill guy so tenants don’t scare me at all. Have thought about buying some rental properties in a couple of years and then refinance them when the kids go to college. I would concentrate on job(s), spending less, saving for retirement and reducing debt for now. Flippers lost money in the last crash, and others lost their homes.

Any advice would be great!
Here is a great little booklet pdf for new investors:
https://www.etf.com/docs/IfYouCan.pdf

DR can help you get out of debt, particularly if due to careless spending, but Boglehead's have better investing advice, IMHO. You are doing great.
Last edited by BL on Sat Jan 13, 2018 5:02 pm, edited 1 time in total.

jorodrig
Posts: 11
Joined: Thu Aug 24, 2017 11:57 pm

Re: Help with young family portfolio

Post by jorodrig » Sat Jan 13, 2018 4:36 pm

Consider interest rate of car loan before paying off. Do you only spend $5K a month with a wife and two kids? What is your secret? :-)
If you are Caucasian professional at 31, you need 6 months min for an emergency fund. You need more if you are of color or if you are in your 40s. Unfortunately, I know what I am talking about, believe me.

I got a senior in high school. College savings is challenging. The more you save (let's say 529) and the more you make, the less colleges give you. Stanford, for example, will give you a full ride if your household income is less than $65-70K, and will cover tuition if your household income is $125K (you cover the rest, around $15K). However, if you got assets, then they will lower their contribution. The good thing is that you can pull from 401K for education. I do not want my kids to end up with killer student loans, but I know other parents feel differently.

It is hard to give advice without knowing your interest rates, but I would fund 401K first to take advantage of company matching (never say no to free money), then emergency fund and then payoff loan. I was out of work for a few months and used my line of credit vs. my emergency fund in 2017. The interest rate for the line of credit was 3.25%, but my emergency fund was in Index 500 and Primecap, and we know the happy ending there. Car loans are really cheap these days.

Best of luck!

el George

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ruralavalon
Posts: 14077
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with young family portfolio

Post by ruralavalon » Sat Jan 13, 2018 5:11 pm

Welcome to the forum :) .

It's always good to see someone starting young, getting debt under control, and being serious about their finances.

Grover22 wrote:
Sat Jan 13, 2018 8:04 am
Long time lurker - first time poster...

I’m looking for some advice about my next step. I’ll admit most of the numbers I see on here are huge (it seems everyone on here has a ton of income and net worth), so I’ll provide a more modest look into financial planning.

Age - 31, married two kids
Household income - 85k
Emergency Funds - $20k (roughly 4 months)
Taxable accounts - $13k
401k - $35k
Car loan - (12k) - I’ll be paying this off next month with our emergency funds and with roughly $1,600 in positive cash flow each month we can build the fund back quickly (just sick of it...)
House - 30k equity (still have 65k on mortgage)
No other debt

I’m currently not making any 401k salary deferrals although my employer puts in 5% each year

I’ve followed Dave Ramsey very closely and theoretically my next step would be to wipe out the car loan and then start funding my retirement. My wife and I will probably need a bigger house at some point and not sure if we should be saving only for that or put some money into Roth IRAs.

We have two kids (3,1) and I’m afraid to think of how expensive college will be in 15 years - not sure the best way to save for this...

I’ll admit I am really drawn to rental properties. Really like the BRRRR process at BiggerPockets where you buy a fixer upper, renovate it and then refinance the money back out to essentially have no money into the rental. Also like the income cash flow potential from rental properties (I know this isn’t everyone’s cup of tea!). I’m a pretty chill guy so tenants don’t scare me at all. Have thought about buying some rental properties in a couple of years and then refinance them when the kids go to college.

Any advice would be great!
Some additional information would be helpful.

About how much money do you believe you may be able to contribute to investing annually?

What is the interest rate on the car loan?

What funds are you using in your 401k? What other funds are offered in your 401k?

What funds are you using in your taxable account?

In identifying funds please give fund names, tickers and expense ratios. Please see the post "asking portfolio questions" for information needed and format.

Please simply add this to your original post using the edit button, it helps a lot if all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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badbreath
Posts: 915
Joined: Mon Jul 18, 2016 7:50 pm

Re: Help with young family portfolio

Post by badbreath » Sat Jan 13, 2018 8:19 pm

I’m currently not making any 401k salary deferrals although my employer puts in 5% each year
Every year when you get a cost of living adjustment raise increase your contribution in your 401k by 1/2 of it. So if you get a 3 % raise this year start contributing 1.5% more in your 401K. Do this every year till you get to the max in your 401k.
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

Grover22
Posts: 2
Joined: Sat Jan 13, 2018 7:42 am

Re: Help with young family portfolio

Post by Grover22 » Sat Jan 13, 2018 8:49 pm

Thanks everyone for the helpful and encouraging replies!

I updated my original post with most of the additional information requested. Couple of highlights:

(1) My company doesn’t do a match - it’s a profit sharing contribution so I receive this regardless of my deferral rate

(2) As far as the car loan is concerned, I think my wife and I would love to be ‘debt free’ outside of the mortgage to just ‘get going’ with the next step

(3) While I would love to fully fund my kids college educations, I know it’s a fine line between having nothing saved and relying 100% in the college while saddling my kids with tons of student loans and ‘overfunding’ and not receiving anything in the forms of scholarships. I think realistically we’re shooting for some sort of middle ground.

(4) I think once the car loan is done I would feel comfortable putting in around $625 a month to Roth IRAs and $333 ($4,000 a year) for the college funds

(5) As you can see, my expenses aren’t huge as I live in a pretty low cost of living area (western PA). With that said, I feel I love a very comfortable life - just looking to allocate income better!

Thanks so much!

jorodrig
Posts: 11
Joined: Thu Aug 24, 2017 11:57 pm

Re: Help with young family portfolio

Post by jorodrig » Tue Jan 16, 2018 1:43 am

Ramsey is too obsess with being debt free. If money is cheap, loans are not bad. You can put the money in the market and take a 2 - 3% loan for a car. It is just math - where is the better potential to grow your money? Yes, you can lose the money in the market, but with this new tax reform and the Trump rally, it is a gravy train...

Of course, it is best to be debt free as you get closer to retirement, but you guys are young.

el George

Frisco Kid
Posts: 370
Joined: Sun Nov 16, 2014 6:18 pm
Location: San Francisco Peninsula

Re: Help with young family portfolio

Post by Frisco Kid » Tue Jan 16, 2018 8:11 am

At your age with two young kids a mortgage and DW primarily a SAHM liquidity is king! Pad your emergency fund for now and do start contributing to your 401K. I would not get caught up in numbers posted on this forum by others or become obsessed with being debt free. You are doing fine with your TOTAL debt being less than 1x your income.

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ruralavalon
Posts: 14077
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help with young family portfolio

Post by ruralavalon » Tue Jan 16, 2018 10:08 am

Grover22 wrote:
Sat Jan 13, 2018 8:49 pm
Thanks everyone for the helpful and encouraging replies!

I updated my original post with most of the additional information requested. Couple of highlights:

(1) My company doesn’t do a match - it’s a profit sharing contribution so I receive this regardless of my deferral rate

(2) As far as the car loan is concerned, I think my wife and I would love to be ‘debt free’ outside of the mortgage to just ‘get going’ with the next step

(3) While I would love to fully fund my kids college educations, I know it’s a fine line between having nothing saved and relying 100% in the college while saddling my kids with tons of student loans and ‘overfunding’ and not receiving anything in the forms of scholarships. I think realistically we’re shooting for some sort of middle ground.

(4) I think once the car loan is done I would feel comfortable putting in around $625 a month to Roth IRAs and $333 ($4,000 a year) for the college funds

(5) As you can see, my expenses aren’t huge as I live in a pretty low cost of living area (western PA). With that said, I feel I love a very comfortable life - just looking to allocate income better!

Thanks so much!
After paying off the car loan (4.2% interest rate) I suggest fully funding two Roth IRAs ($916 per month) as the top priority. Use a low cost provider like Vanguard or Fidelity, and invest in broadly diversified index funds with low expense ratios.

College for your children is around 15-20 years off. If you have your retirement savings and investments in order, then when the time comes you can help finance college out of your income.

It looks like you are doing a good job keeping your expenses low.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

OrangeDan
Posts: 23
Joined: Thu May 05, 2011 12:40 pm

Re: Help with young family portfolio

Post by OrangeDan » Tue Jan 16, 2018 11:58 am

I would open Roth IRA accounts, either before or immediately after paying off the car loan. You can always withdraw the Roth IRA contributions penalty-free if you need the money for something other than retirement. It wouldn't make sense to save for other long term goals (house upgrade, college) in taxable accounts before maxing out your Roth IRA contributions. You can adjust your asset allocation in the Roth IRA to match other non-retirement goals, but you won't be able to get that tax advantaged space back if you decide not to use it.

*The deadline for 2017 Roth IRA contributions is 4/17/18. One option is to pull $11K out of your taxable account or emergency fund to contribute the max for 2017. If you pull it from the emergency fund, just keep the Roth IRAs in a money market or other stable fund until you can replenish the emergency fund with your positive cash flow.
Grover22 wrote:
Sat Jan 13, 2018 8:04 am
Car loan - (12k) - I’ll be paying this off next month with our emergency funds and with roughly $1,600 in positive cash flow each month we can build the fund back quickly (just sick of it...) - rate is around 4.2%
Why pay off the car loan from the emergency fund instead of your taxable account? You have $20K in an emergency fund, $13K in a taxable account, a $12K car loan you are anxious to pay off, and $1,600/month in positive cash flow. It seems like you should be able to max out 2017 Roth IRA contributions, pay off the car loan, and max out 2018 Roth IRA contributions in the next 15 months without depleting your emergency fund.

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dratkinson
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Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: Help with young family portfolio

Post by dratkinson » Tue Jan 16, 2018 1:18 pm

Flipping properties.
--Had a good neighbor who did that.
--He didn't see the trouble coming, declared bankruptcy and moved away with the housing mess in ~2008.
--I miss him.

A better use of your free time would be to go back to school (part-time) to expand your job skills (increase your human capital). Use your increased human capital to get a higher salary. This would be a more reliable source of additional income.


College education.
--I worked full-time and went to school part-time. If your kids want a college education, they can too.
--Your kids can get a loan to pay for school, you CAN'T get a loan to pay for retirement. Take care of yourself first.

Raise good employable kids and your grandkids will get college paid for by their parents, and with a little help from the grandparents.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

soccerrules
Posts: 803
Joined: Mon Nov 14, 2016 4:01 pm

Re: Help with young family portfolio

Post by soccerrules » Tue Jan 16, 2018 2:23 pm

You have received some good input already. I will add a few additional thoughts.
1) Reduce your expenses and start saving in your 401k. I am much older than you but essentially did the same this past year when switching jobs and taking a pay cut. Started at 1% and then look for ways to decrease expenses and then also increasing my 401K % . (this can be net 0 impact, reduce expenses by $100, put $100 in 401K, actually less needed to put in 401K because of tax advantages) . 12 months later I am now starting off 2018 at 6% in my 401K (we save 18% of our combined income in 401k/403B). You are getting 5% free which is great, but you will need far more than that. Not trying to scare you but NOW is the time to do it. Start with the 1%. It will be taken out before you can put your hands on it and after 30 days, you will not miss it. 1% is $35 a paycheck on a $85K salary.
2) Maybe your wife can increase her income when the kids get into school or at least when they are middle/high school age. My wife worked PT 9a-3p, 3 days a week when the youngest kids were in school. It wasn't a ton of income but it added to the pile and allowed for more retirement savings and to help with other expenses.
3) In 20-21 years your youngest will almost be out of college and potentially on their own, you will be pretty young at 52/53. You will have at least a decade to do massive savings. BUT don't wait until then to do more, just plan on being ready to increase the savings efforts then.
4) Time is your friend -- let the wonder of compounding interest be your friend.
5) I would read the wiki's and some of the books on the suggested reading list. Keep reading the forum. Slow and Steady wins the race! (and low cost, indexed investing)
Don't let your outflow exceed your income or your upkeep will be your downfall.

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