As a low-cost person...

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edudumb
Posts: 39
Joined: Thu Jun 21, 2018 1:48 pm

As a low-cost person...

Post by edudumb » Mon Sep 10, 2018 2:42 pm

Background: mid 30s, single, no kids, no debt, no car, no house
Income: ~$150k/ year (joined workforce 2 years ago)

Currently I have about $100k cash (in checkings, savings, cds), and about $100k in retirement funds (maxed all 401k, 457, HSA, and Roth IRA):
27% Vanguard total stock
24% Vanguard int'l stock
13% Fixed income (3-3.5%)
15% TIAA Lifecycle
13% Vanguard Large Cap
1% Vanguard Mid Cap
1% Vanguard Small Cap
6% Vanguard 500
(The fund choices are pretty much restricted by the employer's fund providers and the associated plans, and I just picked the lowest-cost funds in each plan with each provider.)

My monthly expense is <$1k. I feel like I'm spending too little and growing too much cash, and don't know what to do about it.

My question is... what else should I be doing with the money I don't spend? (I did make good use of the cash though; I moved them to different new checking/ saving accts and earned about $5k signup bonuses in the past 2 years.)

MotoTrojan
Posts: 2461
Joined: Wed Feb 01, 2017 8:39 pm

Re: As a low-cost person...

Post by MotoTrojan » Mon Sep 10, 2018 2:47 pm

edudumb wrote:
Mon Sep 10, 2018 2:42 pm
Background: mid 30s, single, no kids, no debt, no car, no house
Income: ~$150k/ year (joined workforce 2 years ago)

Currently I have about $100k cash (in checkings, savings, cds), and about $100k in retirement funds (maxed all 401k, 457, HSA, and Roth IRA):
27% Vanguard total stock
24% Vanguard int'l stock
13% Fixed income (3-3.5%)
15% TIAA Lifecycle
13% Vanguard Large Cap
1% Vanguard Mid Cap
1% Vanguard Small Cap
6% Vanguard 500
(The fund choices are pretty much restricted by the employer's fund providers and the associated plans, and I just picked the lowest-cost funds in each plan with each provider.)

My monthly expense is <$1k. I feel like I'm spending too little and growing too much cash, and don't know what to do about it.

My question is... what else should I be doing with the money I don't spend? (I did make good use of the cash though; I moved them to different new checking/ saving accts and earned about $5k signup bonuses in the past 2 years.)
Do you need $100k of cash? I would invest in into Total Stock & Total International funds and then rebalance your retirement funds to even things out. Keep enough in a high-yield savings account for 6-12 months, or whatever makes you comfortable. If you go over 6 months perhaps have 6 months in high-yield savings and then the rest in a CD ladder or bond fund. Research tax-loss harvesting so you can capitalize on a down-market too.

You could probably simplify a bit too as Total Stock, Large Cap, and 500 are all essentially the same thing (I understand this is likely due to different accounts). Not sure why you have 1% of Mid/Small cap, that seems like a waste of complexity; especially since Vanguards Small-cap Index of choice is really a 50/50 mid/small fund. I'd probably cash out of the TIAA fund and just manage my AA myself using the individual funds.

Otherwise you seem to be in a great shape with a good AA/plan.

Tamalak
Posts: 559
Joined: Fri May 06, 2016 2:29 pm

Re: As a low-cost person...

Post by Tamalak » Mon Sep 10, 2018 2:50 pm

I'm kind of in your position, mid-30s, high savings rate (but not as high as yours!)

My policy is to keep half a year of income or a year of expenses (whichever's higher) in bonds, and the rest in stocks. 10k in cash.

"stocks" = VT ETF, "bonds" = BND ETF.

Simple plan and it's worked great so far!

Rack up the cash at the rate you're doing, and you should retire in less than a decade..

wolf359
Posts: 1416
Joined: Sun Mar 15, 2015 8:47 am

Re: As a low-cost person...

Post by wolf359 » Mon Sep 10, 2018 2:58 pm

Invest the excess cash in a taxable account. That's the core of your early retirement fund. Yes, there are ways to get money out of the retirement accounts, but your taxable account is accessible without any restrictions.

In addition, the taxable account is your freedom fund. It can sustain you through periods of unemployment or job stress. Knowing that you can live without an income for x months or years is very liberating.

You won't be in this position forever. Eventually you may get married, have kids, and have your priorities/expenses change. You might build up enough that you decide to start a business. Life happens. Save while you can.

Culbretd
Posts: 64
Joined: Sat Mar 24, 2018 4:06 am

Re: As a low-cost person...

Post by Culbretd » Mon Sep 10, 2018 2:59 pm

Tamalak wrote:
Mon Sep 10, 2018 2:50 pm
I'm kind of in your position, mid-30s, high savings rate (but not as high as yours!)

My policy is to keep half a year of income or a year of expenses (whichever's higher) in bonds, and the rest in stocks. 10k in cash.

"stocks" = VT ETF, "bonds" = BND ETF.

Simple plan and it's worked great so far!

Rack up the cash at the rate you're doing, and you should retire in less than a decade..
Do you keep the bonds in your taxable account? I'm assuming this is your emergency fund since it is half a years worth of expenses. That could cause a lot of dividends to be taxed an xtra taxes for you at tax time I believe.

edudumb
Posts: 39
Joined: Thu Jun 21, 2018 1:48 pm

Re: As a low-cost person...

Post by edudumb » Mon Sep 10, 2018 3:01 pm

MotoTrojan wrote:
Mon Sep 10, 2018 2:47 pm
You could probably simplify a bit too as Total Stock, Large Cap, and 500 are all essentially the same thing (I understand this is likely due to different accounts). Not sure why you have 1% of Mid/Small cap, that seems like a waste of complexity; especially since Vanguards Small-cap Index of choice is really a 50/50 mid/small fund. I'd probably cash out of the TIAA fund and just manage my AA myself using the individual funds.

Otherwise you seem to be in a great shape with a good AA/plan.
Thanks!

Vanguard mid/ small caps are only available in the HSA acct (max $5.5k/ yr, and HSA keeps the first $1k in balance).

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Meg77
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Re: As a low-cost person...

Post by Meg77 » Mon Sep 10, 2018 3:07 pm

I love this question!

First, how are you spending less than $1000 a month to live? If you live with your parents or another relative, then an obvious first choice is to get your own place. If you're living with roommates, renting your own apartment is a good next step. This can foster lots of positive development and independence if you haven't lived alone before.

Second, do you want a romantic partner? If so, investing in dating is a very rational way to spend some money. This can encompass spending on dates themselves (events, restaurants, etc.), improving your wardrobe or personal appearance (teeth whitening, hair cuts, skin treatments, weight loss programs), online dating fees, and so on.

Now we are on to general lifestyle improvements. Make a list of your values - there are lots of online exercises and books and charts to help. Once you have a list of your top 5, you can brainstorm ways to align your spending with those values.

Examples:
Health and wellness - upgrade to organic produce, pay for yoga or gym classes, hire a trainer or nutritionist,
Social/friendships - join a club, spend money to attend concerts or events with friends you'd otherwise skip, go on a weekend trip with friends
Community - join charitable organizations or young professional associations and attend events, volunteer, donate to causes you care about
Family - travel to visit family periodically (or with them to deepen ties), spend on gifts for family members, freeze your eggs, adopt a child
Animals - adopt a pet, donate to shelters, pay more for animal-friendly products and humanely-sourced foods

Fun, fitness, adventure, independence, ambition, travel - there are all kinds of values you may decide to embody with your time and your money.
"An investment in knowledge pays the best interest." - Benjamin Franklin

Tamalak
Posts: 559
Joined: Fri May 06, 2016 2:29 pm

Re: As a low-cost person...

Post by Tamalak » Mon Sep 10, 2018 3:24 pm

Culbretd wrote:
Mon Sep 10, 2018 2:59 pm
Tamalak wrote:
Mon Sep 10, 2018 2:50 pm
I'm kind of in your position, mid-30s, high savings rate (but not as high as yours!)

My policy is to keep half a year of income or a year of expenses (whichever's higher) in bonds, and the rest in stocks. 10k in cash.

"stocks" = VT ETF, "bonds" = BND ETF.

Simple plan and it's worked great so far!

Rack up the cash at the rate you're doing, and you should retire in less than a decade..
Do you keep the bonds in your taxable account? I'm assuming this is your emergency fund since it is half a years worth of expenses. That could cause a lot of dividends to be taxed an xtra taxes for you at tax time I believe.
Yes, I keep it in taxable. This is my spending money. And yes, I get a tax hit. But it's better to make some money that's then taxed, then keep it in cash.

Really I just expect bonds to protect me from inflation, no more, and that's what it's been doing so far just fine.

I think the fundamental problem with tax efficiency is that stocks are what you want for long term investments, and bonds are what you want for short term.. but bonds are tax-inefficient in short term (brokerage) accounts, so they don't fit well anywhere.

edudumb
Posts: 39
Joined: Thu Jun 21, 2018 1:48 pm

Re: As a low-cost person...

Post by edudumb » Mon Sep 10, 2018 3:29 pm

Meg77 wrote:
Mon Sep 10, 2018 3:07 pm
I love this question!

First, how are you spending less than $1000 a month to live? If you live with your parents or another relative, then an obvious first choice is to get your own place. If you're living with roommates, renting your own apartment is a good next step. This can foster lots of positive development and independence if you haven't lived alone before.

Second, do you want a romantic partner? If so, investing in dating is a very rational way to spend some money. This can encompass spending on dates themselves (events, restaurants, etc.), improving your wardrobe or personal appearance (teeth whitening, hair cuts, skin treatments, weight loss programs), online dating fees, and so on.

Now we are on to general lifestyle improvements. Make a list of your values - there are lots of online exercises and books and charts to help. Once you have a list of your top 5, you can brainstorm ways to align your spending with those values.

Examples:
Health and wellness - upgrade to organic produce, pay for yoga or gym classes, hire a trainer or nutritionist,
Social/friendships - join a club, spend money to attend concerts or events with friends you'd otherwise skip, go on a weekend trip with friends
Community - join charitable organizations or young professional associations and attend events, volunteer, donate to causes you care about
Family - travel to visit family periodically (or with them to deepen ties), spend on gifts for family members, freeze your eggs, adopt a child
Animals - adopt a pet, donate to shelters, pay more for animal-friendly products and humanely-sourced foods

Fun, fitness, adventure, independence, ambition, travel - there are all kinds of values you may decide to embody with your time and your money.
I love this answer! : )

I live rent-free with my partner half time (in another state), and Airbnb when I'm not with him (in my state). I don't like any responsibility/ liability, so I don't want to own car/ hse/ pet. I travel quite a lot, but my work pays for it. I'm super introvert, and hate going out. I usually gift extra cash to my parents, as they're important to me (after gifting them $300k+ in the past few yrs since I was on scholarship before I joined the workforce, they don't need much from me so I'm keeping the extra cash).

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Toons
Posts: 13014
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: As a low-cost person...

Post by Toons » Mon Sep 10, 2018 3:31 pm

If spending money on some "niceties" for yourself or someone else and or charity would bring you pleasure then
Do It.
What are you livin for?

:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

edudumb
Posts: 39
Joined: Thu Jun 21, 2018 1:48 pm

Re: As a low-cost person...

Post by edudumb » Mon Sep 10, 2018 3:40 pm

Tamalak wrote:
Mon Sep 10, 2018 3:24 pm
Culbretd wrote:
Mon Sep 10, 2018 2:59 pm
Tamalak wrote:
Mon Sep 10, 2018 2:50 pm
I'm kind of in your position, mid-30s, high savings rate (but not as high as yours!)

My policy is to keep half a year of income or a year of expenses (whichever's higher) in bonds, and the rest in stocks. 10k in cash.

"stocks" = VT ETF, "bonds" = BND ETF.

Simple plan and it's worked great so far!

Rack up the cash at the rate you're doing, and you should retire in less than a decade..
Do you keep the bonds in your taxable account? I'm assuming this is your emergency fund since it is half a years worth of expenses. That could cause a lot of dividends to be taxed an xtra taxes for you at tax time I believe.
Yes, I keep it in taxable. This is my spending money. And yes, I get a tax hit. But it's better to make some money that's then taxed, then keep it in cash.

Really I just expect bonds to protect me from inflation, no more, and that's what it's been doing so far just fine.

I think the fundamental problem with tax efficiency is that stocks are what you want for long term investments, and bonds are what you want for short term.. but bonds are tax-inefficient in short term (brokerage) accounts, so they don't fit well anywhere.
I started investing in retirement funds <2 yrs ago. I heard about AA, and I know bond is important. But whenever I look at the bond performance, I just don't know how to make sense of it, since it's just slightly better than cds... :confused

edudumb
Posts: 39
Joined: Thu Jun 21, 2018 1:48 pm

Re: As a low-cost person...

Post by edudumb » Mon Sep 10, 2018 3:42 pm

Toons wrote:
Mon Sep 10, 2018 3:31 pm
If spending money on some "niceties" for yourself or someone else and or charity would bring you pleasure then
Do It.
What are you livin for?

:happy
:beer

I just don't think my pleasure comes from "niceties" or anything materialistics. :greedy :greedy :greedy
Life would have been easier. :oops:

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Toons
Posts: 13014
Joined: Fri Nov 21, 2008 10:20 am
Location: Hills of Tennessee

Re: As a low-cost person...

Post by Toons » Mon Sep 10, 2018 5:56 pm

edudumb wrote:
Mon Sep 10, 2018 3:42 pm
Toons wrote:
Mon Sep 10, 2018 3:31 pm
If spending money on some "niceties" for yourself or someone else and or charity would bring you pleasure then
Do It.
What are you livin for?

:happy
:beer

I just don't think my pleasure comes from "niceties" or anything materialistics. :greedy :greedy :greedy
Life would have been easier. :oops:
Keep Saving. :thumbsup
Enjoy.
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Tamalak
Posts: 559
Joined: Fri May 06, 2016 2:29 pm

Re: As a low-cost person...

Post by Tamalak » Mon Sep 10, 2018 6:06 pm

edudumb wrote:
Mon Sep 10, 2018 3:40 pm
I started investing in retirement funds <2 yrs ago. I heard about AA, and I know bond is important. But whenever I look at the bond performance, I just don't know how to make sense of it, since it's just slightly better than cds... :confused
Bond returns have been lousy lately because they're mainly driven by the federal rate, which is historically low right now. But if you look at BND's history, it's returned 4% since inception (2007).

jehovasfitness
Posts: 553
Joined: Mon Jan 22, 2018 2:26 pm

Re: As a low-cost person...

Post by jehovasfitness » Mon Sep 10, 2018 6:21 pm

Toons wrote:
Mon Sep 10, 2018 3:31 pm
If spending money on some "niceties" for yourself or someone else and or charity would bring you pleasure then
Do It.
What are you livin for?

:happy
This

I'd be traveling the world

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