Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

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alisondilaurentis
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Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by alisondilaurentis » Fri Jan 11, 2019 6:07 pm

Hi everyone! I've skimmed this a little bit and honestly it is SO overwhelming for me. As a bit of an introduction, [OT comment removed by admin LadyGeek] We used credit cards irresponsibly, tax refunds were for new TVs or other dumb stuff, and living paycheck-to-paycheck was an understatement. We alternated living in a trailer park and with my grandparents if we spent irresponsibly enough to not make rent on the trailer. I received an array of scholarships to attend a very elite school and graduate school. I have been in my job for years and have made six figures in this job since starting.

When I first took my job, I fell into a lesser version of the "lottery winner" trap. The salary I was making was many times what my parents combined made, and I felt "rich." I spent very irresponsibly and ended up thousands of dollars in credit card debt by getting caught up in the freedom to spend money and obtain credit. I have now paid off my credit card debt, student loans from graduate school, and purchased a home in the major East Coast city that I live in (with an adequate down payment to avoid PMI at a very favorable low interest rate last year). I am married (my wife has also paid off all non-mortgage debts), and we do not have or plan to have children. We max our 401Ks and Backdoor Roth IRAs each year. I've done very cursory reading on Bogleheads and our 401Ks are set up in roughly the "three fund portfolio" and the Backdoor Roths are low-expense-ratio Target Retirement Date funds.

I am going to set out a formal budget this year to try and save more. But, really, my question is.... what comes next? I currently have about $140,000 in savings. I literally don't know what to do with it. Are there good resources to catch up on 30 years of responsibility and investment training? I know not to look at your 401(k)s based on the market because you won't touch them for decades, but I'm very reticent to take my savings and put it in the stock market right now, given market volatility. I also have no concept of the tax consequences for this type of account/gain. I've seen Bogleheads threads saying to keep some money in a savings account with a high APY, but to keep a large amount of money (more than a six-month emergency fund) in a savings account is a waste because your money could be working for you.

I understand this is the epitome of a first world problem, but I am clueless and anxious about this and hope you can help!


runner540
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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by runner540 » Fri Jan 11, 2019 7:05 pm

[deleted]
Last edited by runner540 on Fri Jan 11, 2019 10:18 pm, edited 1 time in total.

Katietsu
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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by Katietsu » Fri Jan 11, 2019 7:10 pm

runner540 wrote:
Fri Jan 11, 2019 7:05 pm
Welcome! I noticed your username looks like a firstlast. You May be more comfortable using something else for anonymity.
I assume it is a reference to a TV character.

But thoughtful comment as my husband has used his real name in what was supposed to be an anonymous forum
Last edited by Katietsu on Fri Jan 11, 2019 7:11 pm, edited 1 time in total.

IowaFarmWife
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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by IowaFarmWife » Fri Jan 11, 2019 7:11 pm

Pretty Little Liars fan, OP? :D
“The quickest way to double your money is to fold it in half and put it in your back pocket.” —Will Rogers

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by DesertDiva » Fri Jan 11, 2019 7:19 pm

Congratulations on getting to where you are now! Give yourself some credit for overcoming past mistakes (we've all made some) and finding a way to get yourself on track.

The best place to start is always at the beginning and this site has some great resources: https://www.bogleheads.org/wiki/Getting_started
You owe it to yourself to give it more than a cursory glance.

[*]More info on placement of emergency funds including a "multi-tiered" fund: https://www.bogleheads.org/wiki/Emergency_fund
[*]One of the best things you can do for yourselves is create an IPS - the process of creating it will help you immensely: https://www.bogleheads.org/wiki/Investm ... _statement

Also check out the recommended reading list (Amazon link above). Start with John Bogle's book "The Little Book of Common Sense Investing" and branch out from there.

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by mlebuf » Fri Jan 11, 2019 7:30 pm

Welcome! You have come to the right place and are reading good sources. Develop the habit of saving a healthy percentage of your income, invest it in low cost mutual funds, leave it alone, let the power of compounding work its magic and you will become wealthy. Begin by maximizing the amount you can save/invest in tax deferred accounts. With a $400K annual income you may be able to retire much earlier than most. My parents were not savers either and reached retirement with no assets. Sometimes by watching our parents we learn what to do and what not to do.

P.S. - Forget about keeping up with the Joneses. The Joneses are broke.
Best wishes, | Michael | | Invest your time actively and your money passively.

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by sambb » Fri Jan 11, 2019 7:38 pm

You wil get varied advice here. I would put 100% in tax managed balanced, given that you make 400k and dont know what to do. Average in every month. Dont worry about the monye for 10 years. You will be thrilled with no issues at all, and you will be crash-proof since this is conservative. You could stay in this one fund all you life. You'll be fine. Dont touch it,

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by HEDGEFUNDIE » Fri Jan 11, 2019 8:26 pm

What is your risk tolerance?

If you want your money “to work for you” you have to be ok with taking on stock market risk. You can’t have your cake and eat it too.

The good news is in the long term the stock markets do compensate you for the risk you are taking. As long as you have the discipline to stay the course and not panic sell during periods of volatility.

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by leeks » Fri Jan 11, 2019 8:57 pm

alisondilaurentis wrote:
Fri Jan 11, 2019 6:07 pm
...I have now paid off my credit card debt, student loans from graduate school, and purchased a home in the major East Coast city that I live in (with an adequate down payment to avoid PMI at a very favorable low interest rate last year)...We max our 401Ks and Backdoor Roth IRAs each year. I've done very cursory reading on Bogleheads and our 401Ks are set up in roughly the "three fund portfolio" and the Backdoor Roths are low-expense-ratio Target Retirement Date funds...I currently have about $140,000 in savings. I literally don't know what to do with it.
Oh my, this is so very very far from "clueless" I would almost ask you to retitle the thread!

You have all the biggest "clues" under control. You obtained a top education, have a fantastic career (which hopefully you enjoy). You are far above peers your age in everything - net worth, retirement savings, owning a home, knowing what an expense-ratio is and about Roth IRAs, etc. Obviously that 99th percentile income is a big factor, it would allow you to achieve financial independence at a very young age - if that is something you desire. Aside from finances, you have found and married a spouse to enjoy your life with and who presumably shares your values. You are highly successful by any measure!

It is great that you are ready to learn more and want to feel truly in control of directing your finances to whatever path will maximize your quality of life. This forum will provide wonderful guidance.

One thing to look out for - that many don't anticipate in their financial planning - is the potential of your parents asking for money at some point. I'm not saying you *should* take that on, but you and your spouse might want to think about if/when/how you might respond when they can't work anymore and/or have a major health crisis (since you will be able to afford to help if you want to). I say this because my husband and I (in our late 30s, our parents around 70) are realizing now that we should be planning strategies for assisting one, possibly two parents. No decisions have to be made yet, but we probably should have thought more seriously about this a bit earlier so it wouldn't feel like such a disruption to our plans.

It also sounds like you should try to be as discrete as possible about your financial situation when you visit your family/hometown - or you may start getting a lot of requests for help!

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by arcticpineapplecorp. » Fri Jan 11, 2019 9:54 pm

these are generally the order of prioritizing investments (from the wiki):

https://www.bogleheads.org/wiki/Priorit ... nvestments
Funding priority

Here is a general account funding priority that often works well for many people (not all points will apply to everyone):

Contribute to the work-based plan (401(k), 403b,) enough to get the full employer match (the match is like free money, your best possible investment),
Pay off high interest debt (a guaranteed high return, the next best thing to free money),
Contribute to a Health Savings Account (HSA) if available (unlike many other tax deductions, there are no income restrictions to contribute to an HSA),[1][note 1]
Contribute the maximum to an IRA, traditional or Roth (or backdoor Roth technique[note 2]), depending on eligibility and personal circumstances,
Contribute the remainder of the maximum employee contribution to the work-based plan,
Contribute to a taxable investing account,
Contribute to non-deductible IRAs (may be better than taxable in certain circumstances) or annuities.

If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA.

An investor's tax bracket may influence the decision as well: those in higher tax brackets should consider higher contributions to a tax-deferred plan (e.g. traditional 401(k) or IRA) rather than a post-tax plan (e.g. Roth 401(k) or IRA); see Traditional versus Roth for more guidance.

Health savings accounts: Use of an HSA requires participation in an IRS qualified high deductible health plan (HDHP) at work. Look at your particular health care needs to decide if you may be better off with a traditional health care plan or an HDHP plus HSA. If the latter, then using the HSA as an investment account can be advantageous.
source: https://www.bogleheads.org/wiki/Priorit ... nvestments
So if you've done all of the emergency savings, retirement stuff and paid off debts and max HSA, the only place left is in a taxable account or put it towards paying off the house (but if you have a low interest rate it might not be imperative to do that. Though some like to pay off the mortgage for the psychological/emotional effect).

Not sure if there's a good way to put this so I'll just say it. Is there any chance your family will come after your for money (continually) since you've done so much better than them (financially speaking)?
"May you live as long as you want and never want as long as you live" -- Irish Blessing | "Invest we must" -- Jack Bogle

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by Tdubs » Fri Jan 11, 2019 10:08 pm

Um, charity?

Given the background you describe, establish a need-based scholarship/grant at the community college or tech school near your hometown?

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by White Coat Investor » Fri Jan 11, 2019 10:13 pm

alisondilaurentis wrote:
Fri Jan 11, 2019 6:07 pm
Hi everyone! I've skimmed this a little bit and honestly it is SO overwhelming for me. As a bit of an introduction, [OT comment removed by admin LadyGeek] We used credit cards irresponsibly, tax refunds were for new TVs or other dumb stuff, and living paycheck-to-paycheck was an understatement. We alternated living in a trailer park and with my grandparents if we spent irresponsibly enough to not make rent on the trailer. I received an array of scholarships to attend a very elite school and graduate school. I have been in my job for years and have made six figures in this job since starting.

When I first took my job, I fell into a lesser version of the "lottery winner" trap. The salary I was making was many times what my parents combined made, and I felt "rich." I spent very irresponsibly and ended up thousands of dollars in credit card debt by getting caught up in the freedom to spend money and obtain credit. I have now paid off my credit card debt, student loans from graduate school, and purchased a home in the major East Coast city that I live in (with an adequate down payment to avoid PMI at a very favorable low interest rate last year). I am married (my wife has also paid off all non-mortgage debts), and we do not have or plan to have children. We max our 401Ks and Backdoor Roth IRAs each year. I've done very cursory reading on Bogleheads and our 401Ks are set up in roughly the "three fund portfolio" and the Backdoor Roths are low-expense-ratio Target Retirement Date funds.

I am going to set out a formal budget this year to try and save more. But, really, my question is.... what comes next? I currently have about $140,000 in savings. I literally don't know what to do with it. Are there good resources to catch up on 30 years of responsibility and investment training? I know not to look at your 401(k)s based on the market because you won't touch them for decades, but I'm very reticent to take my savings and put it in the stock market right now, given market volatility. I also have no concept of the tax consequences for this type of account/gain. I've seen Bogleheads threads saying to keep some money in a savings account with a high APY, but to keep a large amount of money (more than a six-month emergency fund) in a savings account is a waste because your money could be working for you.

I understand this is the epitome of a first world problem, but I am clueless and anxious about this and hope you can help!
Ha, ha. I've dedicated a big portion of my life to solving first world problems. Lots of my readers also grew up poor and aren't sure what to do with their high income professional salaries. You sounds like you're doing better than most.

You mostly just invest additional savings in a taxable account after you've maxed out available retirement accounts until you hit your numbers. Then you retire or cut back or continue working and spend/give/leave more behind.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by Watty » Fri Jan 11, 2019 10:32 pm

When I was learning about investing one of the things I picked up was that there are really only three things you can control.

1) How much you save or spend each year.
2) Your asset allocation.
3) Keeping costs low, which is more important than most people realize.

There are of course all sorts of details but that is the core of what you can do so try not to feel overwhelmed with what you need to learn.
alisondilaurentis wrote:
Fri Jan 11, 2019 6:07 pm
Are there good resources to catch up on 30 years of responsibility and investment training?
One thing that would help you get started is to read the book "The Bogleheads Guide to Investing" to get a starting point.

https://www.amazon.com/Bogleheads-Guide ... Bogleheads

This will likely not have all the answers but it will help give you a good foundation to get started.

For the most part there is no hurry to do anything and if it takes six months to learn more and come up with a plan then it is fine to leave your money in a savings account for a bit longer.

I apologize if these seem a bit basic but here are a few things that would be good to do while you are learning more.

1) Max out all your tax advantaged accounts like 401k, HSA, etc. For the 401k you want to set the payroll deduction to be just enough to max it out at the end of December. Some companies have a 401k match that is calculated by paycheck so if you max it out early in the year you may miss some of the employer match.

2) Make sure that you have ample car insurance and an umbrella policy for at least a million dollars.

3) It sounds like you have already done it but pay off all your credit cards, car loans, and other debt.

4) This one would not be something everyone would suggest but consider if your cars are reasonably safe. One of my pet peeves is people that post that they have a lot of money but they are driving an old beater that has few safety features. For example ESC, electronic stability control, is a good safety feature that became standard in 2012 so if you have a car that is older than that it may not have that. Companies have also added a lot of advanced safety features in the last few years like automatic braking. I'm not saying that you should buy an expensive car with all the latest bells and whistles but something like a basic Camry might be a lot safer than an older car. Leasing a car almost never makes sense for an individual, just pay cash for it.

Topic Author
alisondilaurentis
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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by alisondilaurentis » Sat Jan 12, 2019 3:22 am

THANK YOU so much for such a warm welcome and so many reading materials! i will read everything linked here by everyone and pick up the recommended books. as said above by Watty, i have no hurry to make a rash decision with a lot of money.

EDIT to add: one thing I am hoping these links or books give me a handle on is the potential tax consequences of non-tax advantaged (by that I mean 401k and Roth, hopefully that's the correct phrase) investments.
Katietsu wrote:
Fri Jan 11, 2019 7:10 pm
runner540 wrote:
Fri Jan 11, 2019 7:05 pm
Welcome! I noticed your username looks like a firstlast. You May be more comfortable using something else for anonymity.
I assume it is a reference to a TV character.

But thoughtful comment as my husband has used his real name in what was supposed to be an anonymous forum
no offense taken, runner540! it is a reference to TV though, not my real name!
IowaFarmWife wrote:
Fri Jan 11, 2019 7:11 pm
Pretty Little Liars fan, OP? :D
friends share secrets. that's what keeps us close.
sambb wrote:
Fri Jan 11, 2019 7:38 pm
You wil get varied advice here. I would put 100% in tax managed balanced, given that you make 400k and dont know what to do. Average in every month. Dont worry about the monye for 10 years. You will be thrilled with no issues at all, and you will be crash-proof since this is conservative. You could stay in this one fund all you life. You'll be fine. Dont touch it,
i assume by tax managed balanced you mean something like VTFMX (or SWOBX?). i hear a lot of recommendations for VTSAX as a taxable thing -- is asking for the difference in these two an easy answer or something i will learn in all these recommendation
HEDGEFUNDIE wrote:
Fri Jan 11, 2019 8:26 pm
What is your risk tolerance?

If you want your money “to work for you” you have to be ok with taking on stock market risk. You can’t have your cake and eat it too.

The good news is in the long term the stock markets do compensate you for the risk you are taking. As long as you have the discipline to stay the course and not panic sell during periods of volatility.
i think this is the key, honestly. i've never been in a position to take on risk and it scares the crap out of me.
leeks wrote:
Fri Jan 11, 2019 8:57 pm
It also sounds like you should try to be as discrete as possible about your financial situation when you visit your family/hometown - or you may start getting a lot of requests for help!
arcticpineapplecorp. wrote:
Fri Jan 11, 2019 9:54 pm
Not sure if there's a good way to put this so I'll just say it. Is there any chance your family will come after your for money (continually) since you've done so much better than them (financially speaking)?
i don't think they really have a concrete idea, thankfully...
Watty wrote:
Fri Jan 11, 2019 10:32 pm
4) This one would not be something everyone would suggest but consider if your cars are reasonably safe. One of my pet peeves is people that post that they have a lot of money but they are driving an old beater that has few safety features. For example ESC, electronic stability control, is a good safety feature that became standard in 2012 so if you have a car that is older than that it may not have that. Companies have also added a lot of advanced safety features in the last few years like automatic braking. I'm not saying that you should buy an expensive car with all the latest bells and whistles but something like a basic Camry might be a lot safer than an older car. Leasing a car almost never makes sense for an individual, just pay cash for it.
thankfully, i have been car-free for many years!

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by SoonerD » Sat Jan 12, 2019 4:33 am

[Quoted post removed by admin LadyGeek]

2) to keep a large amount of money (more than a six-month emergency fund) in a savings account is a waste because your money could be working for you: Take the $140,000 you have in savings and designate it as your emergency fund. Find a CD with no penalty for early withdrawal or put it into a U.S. Treasury Money Market Fund - Vanguard has one available.

Emergency fund money IS working for you. It earns a return and it provides a safety net so that you can take other risks.

The UHNW don't need an e-fund; if you are reliant on a paycheck then you need an e-fund.

3) I am going to set out a formal budget this year to try and save more. But, really, my question is.... what comes next? FIRST, work with your wife to establish a budget, not this year but more like this weekend. Track every dollar for an entire year. Have a monthly budget to actual expense comparison meeting with her every week until Summer then move it to monthly. SECOND, go to the wikki and look for recomended books. Read 10 of the before year end and ask your wife to do the same (but different books). Have a periodic book review meeting to discuss each one. THIRD, continue to invest in the 3-fund. Don't change our AA until you've done the above. Then create an IPS with your wife and execute it for 2020 until death.

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by IngognitoUSA » Sat Jan 12, 2019 6:12 am

Since you are not planning on having kids I recommend providing charity in your old neighborhood, money and time. It will give you reason to keep working even after you have [(removed) --admin LadyGeek] and kindness is good for the soul. Purely a personal choice, you don’t owe anyone anything
Last edited by IngognitoUSA on Sat Jan 12, 2019 8:34 am, edited 1 time in total.

MarkVH0518
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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by MarkVH0518 » Sat Jan 12, 2019 8:17 am

alisondilaurentis wrote:
Fri Jan 11, 2019 6:07 pm
We max our 401Ks and Backdoor Roth IRAs each year. I've done very cursory reading on Bogleheads and our 401Ks are set up in roughly the "three fund portfolio" and the Backdoor Roths are low-expense-ratio Target Retirement Date funds.

I am going to set out a formal budget this year to try and save more. But, really, my question is.... what comes next?

I understand this is the epitome of a first world problem, but I am clueless and anxious about this and hope you can help!
My family didn't have money either, although we didn't live in trailers. I have an appreciation your emotions.
I'd like to put you at ease a bit.

1) if you are maxing 401k, backdoor Roths, using '3-fund' and/or target retirement fund.
The answer to "what next?" is: NOTHING MORE IS NECESSARY
Saving at your rate and in your selected investments will achieve a comfortable retirement at your current living standard.

2) That does not imply there is not something more to know, especially taxes. Learning about taxes in your tax bracket will
be valuable, but not necessary for a comfortable life.

3) Taxes are complicated so it will take a long time to acquaint yourself with. Moreover, you are already executing on the most
important financial objectives. The next investing steps, like learning taxes, take more effort on your part and accomplish less benefit.
But they do accomplish benefits.

4) If you are concerned about losses then try a 60% stock/40% bond portfolio. These are quite low in volatility, but will
likely limit total returns. If you are currently invested in Target Retirement 2055, which is the conventional wisdom, the stock allocation
is probably 90%, quite a bit higher than my suggestion for 60%. Perhaps you could start 60% stock allocation for 5 years until you get
more comfortable with investing. Do note that 60% stock allocation, even if lower total return, at your savings rate
and assuming you work to age 60, would provide you with a very comfortable retirement.
Allow yourself to grow into an outstanding investor (you are already a pretty good one).

5) One last thing. Although this forum is pretty darn good, there are many 'experts' who will teach you things that are counterproductive.
Take all advice with a grain of salt, going slow is fine.
"Don't just do something, stand there." is the best investing advice I can provide.

Congratulations. You're doing great. Welcome to the club. These first world problems are fun.
Take care,
Mark

Olemiss540
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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by Olemiss540 » Sat Jan 12, 2019 8:34 am

You seem extremely concerned (rightfully so) about tax efficiency. There is a very good summary in the wiki termed "Tax efficient fund placement" or something along those lines. Breaking it down:

Two investment options, stocks and bonds. If your taxable account is for needs greater than 7 years away, you should follow your asset allocation for your retirement assets. In this scenario, it is highly recommended to buy diversified total stock funds and total international stock funds in your taxable account as they are the most tax efficient investments. This will need to be balanced out by holding a higher percentage of bonds in your 401k in order to maintain your asset allocation.

Stock gains once sold are taxed at a preferential rate termed the "capital gains" rate. This is basically the gov't way of enticing people to support the US stock market. This is one reason you want stocks and NOT bonds in the taxable account.

Also, even if you do not sell, most investments kick off something called dividends and interest payments. A total stock mutual fund works to keep these dividends as low as possible (around 2% a year) and works to ensure almost all of these dividends are "qualified" so they are taxed at the lowest rate possible. You should plan on paying approximately 0.5% of your taxable fund value in taxes yearly to account for this through withdrawal of a portion of this dividend payment (or preferrably from other funds in your checking account).

A bond investment on the other hand kicks off interest. These payments do NOT get preferential tax treatment and thus are taxed at ordinary income tax rates (high)! For a person in a high tax bracket such as yourself, this is handled in a couple ways. One is to just keep all of your bond investments in your 401k as this shelters them from any taxes until retirement. The other (in case you run out of room in your 401k) is to invest in "municipal bonds". These bonds' interest payments are not taxed at a federal level and thus do not hit your income taxes each year. The downside is that they usually pay much less interest than a total bond fund (which is why holding bonds in a 401k is usually preferred first step).

In jist, any overflow savings should be placed into a taxable investment account with a low cost provider (Fidelity, Vanguard, Schwab) and split 70/30 (or whatever your personal preference) into a total stock market and total international market index fund. Then exchange enough stock funds for bond funds in your existing tax advantaged accounts (401ks) in order to maintain your personal asset allocation. Also, use downturns in the market to "tax loss harvest" as another avenue to saving money on income taxes.

Sorry if I missed anything as I am on a cell phone, but this is the short version. The wiki topic has a much more thorough and precise explination!
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.

Topic Author
alisondilaurentis
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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by alisondilaurentis » Sat Jan 12, 2019 3:45 pm

Olemiss540 wrote:
Sat Jan 12, 2019 8:34 am
You seem extremely concerned (rightfully so) about tax efficiency. There is a very good summary in the wiki termed "Tax efficient fund placement" or something along those lines.
i think it's mostly because it's a topic i know nothing about and a close friend of mine with a similar background sold a boatload of her vested stock options without considering tax consequences and had a large amount of taxes to pay on it she didn't expect. so i want to be as prepared as possible!

dbr
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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by dbr » Sat Jan 12, 2019 3:49 pm

alisondilaurentis wrote:
Sat Jan 12, 2019 3:45 pm
Olemiss540 wrote:
Sat Jan 12, 2019 8:34 am
You seem extremely concerned (rightfully so) about tax efficiency. There is a very good summary in the wiki termed "Tax efficient fund placement" or something along those lines.
i think it's mostly because it's a topic i know nothing about and a close friend of mine with a similar background sold a boatload of her vested stock options without considering tax consequences and had a large amount of taxes to pay on it she didn't expect. so i want to be as prepared as possible!
Tax problems like that can be a real gotcha. I think good preparation for that sort of thing is to consult with a tax accountant before making any major financial decisions. Alternatively one can self-educate. Fairmark.com offers several really good books on subjects such as capital gains and stock options, the reading of which would have prevented your friend from making that mistake. Those books will also discuss the possibly even worse mistake of not selling vested options.

justsomeguy2018
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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by justsomeguy2018 » Sat Jan 12, 2019 4:19 pm

alisondilaurentis wrote:
Sat Jan 12, 2019 3:45 pm
Olemiss540 wrote:
Sat Jan 12, 2019 8:34 am
You seem extremely concerned (rightfully so) about tax efficiency. There is a very good summary in the wiki termed "Tax efficient fund placement" or something along those lines.
i think it's mostly because it's a topic i know nothing about and a close friend of mine with a similar background sold a boatload of her vested stock options without considering tax consequences and had a large amount of taxes to pay on it she didn't expect. so i want to be as prepared as possible!
This Wiki is a nice resource:

https://www.bogleheads.org/wiki/Tax-eff ... _placement

One thing I had not been aware of - REIT stocks/stock funds are not tax efficient (if you have a high marginal tax rate, which you do), so those are not really appropriate for taxable accounts, supposedly.

Your income is pretty high but there are certain things that kick in at certain income levels that you're probably already aware of (e.g. at $250k annual income, investment income is taxed at an additional 3.8% (Net Income Investment Tax), medicare surcharge tax also applies at that rate).

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by Watty » Sat Jan 12, 2019 4:46 pm

alisondilaurentis wrote:
Sat Jan 12, 2019 3:45 pm
Olemiss540 wrote:
Sat Jan 12, 2019 8:34 am
You seem extremely concerned (rightfully so) about tax efficiency. There is a very good summary in the wiki termed "Tax efficient fund placement" or something along those lines.
i think it's mostly because it's a topic i know nothing about and a close friend of mine with a similar background sold a boatload of her vested stock options without considering tax consequences and had a large amount of taxes to pay on it she didn't expect. so i want to be as prepared as possible!
It will not help with the long term planning but one thing you can do to check out the impact of some scenario is to use tax software to do a dummy tax return to see what the tax impact of something of this is. This should include your state taxes too. This will not be exact since the tax laws change each year but this will usually give you a good general idea of the tax impact. Sometimes these are not obvious since increased income can also cause you to have something like a tax credit be phased out.

If you have someone else do your taxes then you may still want to buy tax software and try to duplicate their tax return using tax software to get a better feel about how it works.

This may sound archaic but a good case can be made that at least once in your life you should also get the paper tax forms and booklets and fill out your tax return just using a pencil and a calculator. This will involve a lot of reading of instructions to figure out how to enter the right numbers but it is an invaluable experience to learn how tax returns work.

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by dan1953 » Sun Jan 13, 2019 1:54 pm

Kudos to you, OP! I would only add that it's okay to help out your family members, especially young people, if you can afford it, as long as:

a. they are good people and doing their best in life: working and/or in school, no addictions, etc.
b. they are appreciative and will view your generosity as a "hand up" and not a "hand out."

Personally, I'm helping my own kids and grandkids, including contributions to Roths and 529 plans, and I don't regret it one bit.

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by jayk238 » Sun Jan 13, 2019 2:25 pm

alisondilaurentis wrote:
Fri Jan 11, 2019 6:07 pm
Hi everyone! I've skimmed this a little bit and honestly it is SO overwhelming for me. As a bit of an introduction, [OT comment removed by admin LadyGeek] We used credit cards irresponsibly, tax refunds were for new TVs or other dumb stuff, and living paycheck-to-paycheck was an understatement. We alternated living in a trailer park and with my grandparents if we spent irresponsibly enough to not make rent on the trailer. I received an array of scholarships to attend a very elite school and graduate school. I have been in my job for years and have made six figures in this job since starting.

When I first took my job, I fell into a lesser version of the "lottery winner" trap. The salary I was making was many times what my parents combined made, and I felt "rich." I spent very irresponsibly and ended up thousands of dollars in credit card debt by getting caught up in the freedom to spend money and obtain credit. I have now paid off my credit card debt, student loans from graduate school, and purchased a home in the major East Coast city that I live in (with an adequate down payment to avoid PMI at a very favorable low interest rate last year). I am married (my wife has also paid off all non-mortgage debts), and we do not have or plan to have children. We max our 401Ks and Backdoor Roth IRAs each year. I've done very cursory reading on Bogleheads and our 401Ks are set up in roughly the "three fund portfolio" and the Backdoor Roths are low-expense-ratio Target Retirement Date funds.

I am going to set out a formal budget this year to try and save more. But, really, my question is.... what comes next? I currently have about $140,000 in savings. I literally don't know what to do with it. Are there good resources to catch up on 30 years of responsibility and investment training? I know not to look at your 401(k)s based on the market because you won't touch them for decades, but I'm very reticent to take my savings and put it in the stock market right now, given market volatility. I also have no concept of the tax consequences for this type of account/gain. I've seen Bogleheads threads saying to keep some money in a savings account with a high APY, but to keep a large amount of money (more than a six-month emergency fund) in a savings account is a waste because your money could be working for you.

I understand this is the epitome of a first world problem, but I am clueless and anxious about this and hope you can help!
What kind of job secuirty and what field are you in?

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by AlphaLess » Sun Jan 13, 2019 2:29 pm

Katietsu wrote:
Fri Jan 11, 2019 7:10 pm
runner540 wrote:
Fri Jan 11, 2019 7:05 pm
Welcome! I noticed your username looks like a firstlast. You May be more comfortable using something else for anonymity.
I assume it is a reference to a TV character.

But thoughtful comment as my husband has used his real name in what was supposed to be an anonymous forum
Here is a typical procedure for signing up for a social media account.

Step 1: start with a burner phone,
Step 2: get a VPN account,
Step 3: get a burner e-mail address,
Step 4: sign up for the social media account using VPN, burner id, burner phone, and burner e-mail,
Step 5: post.
"You can get more with a kind word and a gun than with just a kind word." George Washington | Party affiliation: Vanguard. Religion: low-cost investing.

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by mhalley » Mon Jan 14, 2019 11:33 am

I see wci replied above. Check out his site and sign up for his email newsletter. It contains lots if tips.

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by nedsaid » Mon Jan 14, 2019 11:42 am

What I would say here is to stop saying that you are clueless about money. You will have to learn like the rest of us. Unfortunately, your parents did not teach you personal finance skills and they themselves struggled with these issues. You are going to have to take an interest in these things and treat personal finance as so important that your life depends on it. Sort of like taking enough interest in auto maintenance that you keep your car well maintained even if you are not mechanically inclined. Your life depends upon making certain your brakes work and that you have good tires. Slick roads don't care if you grew up poor, etc. etc. etc.

Pretty much I am saying to stop making excuses, take interest in these topics, and get to learning enough about these topics that you can function as a financially responsible adult. I do commend you for being a good saver rather than blowing it all. That is lesson number one and congratulate yourself for learning this. You don't have to become an investment expert but you have to know enough in order to make good and responsible choices.
A fool and his money are good for business.

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by Daphne122 » Mon Jan 14, 2019 6:55 pm

Hi- I have no real advice except that you have come to the right place and you are definitely NOT clueless. Sounds like you just need a bit of hand-holding and then you'll be set!

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Re: Clueless About Personal Finance At Age 30: Grew Up Poor, Now Make $400K+. Have No Clue What To Do With Money.

Post by LadyGeek » Mon Jan 14, 2019 7:43 pm

I removed some off-topic comments. As a reminder, see: General Etiquette
At all times we must conduct ourselves in a respectful manner to other posters.
I also removed an off-topic post and reply regarding socio-economic stereotypes.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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