Financial Checkup

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scorcher31
Posts: 8
Joined: Sun Mar 06, 2016 11:13 pm

Financial Checkup

Post by scorcher31 » Sun Sep 10, 2017 2:07 pm

I am looking for input to see how we are doing financially. Not necessarily specific stock picks. I just started working ~3 years ago, wife has been working for a decade. We just paid off our student loans and cars and started saving up aggressively this year. We have a new baby on the way which I am both excited for and bit scared about financially. I'm afraid it may drastically slow down our savings at least until the mortgage is done or the baby is out of daycare.

Checking: 18k
Emergency funds: 50k
Debt: 195k on 315k home, 3.5% interest
No other debt.

Tax Filing Status: Married filing jointly
Tax Rate: ~28% with alternative minimum tax Federal, 6.37% State
State of Residence: NJ
Age:33/33

Asset allocation: 90% stocks / 10% bonds
International allocation: 20-30% of stocks

Current retirement assets 508k invested all in low expense passive index funds
Her 401k: 204k
His 401k: 73k
Her Roth IRA: 45k
His Roth IRA: 13k
Taxable Account: 173k

Annual Contributions:
$18k his 401k (1% Match)
$18K her 401k (6% Match)
$5.5k his Roth IRA
$5.5k her Roth IRA
$48k taxable Vanguard (minimum plus whatever is left over)

Annual combined income:335k (expect it to stay about this for quite some time)
Monthly Income (after taxes, health insurance and 401ks)~14.3k, assuming we only get 2 checks in the month and I haven't capped on social security

Monthly Expenses:
~5k/month for mortage/property tax/homeowners insurance (will be paid off in 4.3 years then will just have 1k property/insurance)
~500/month for utilities/cell/cable/internet
~500/month on groceries
~300/month on car insurance and gas
~1000/month on miscellaneous (home needs/ going out to eat/ decorations/clothes)

First baby on way, expect both of us to continue to work but expenses to increase for daycare, possibly private school middle school on up and college savings.
~2000-2500/month

1. How are we doing overall? Sometimes I feel like we are way behind, other times I feel like we are doing well.

2. Considering the extra childcare costs may limit my ability to save, should we just try to wipe out the mortgage quickly to free up that money to channel into the taxable?

3.Daycare is only for a short time so I'm fine with that expense. The public elementary school is fine and I would send me child there for free. The middle school/ high school is a bit rough to say the least. If we need to pay 20k a year for private schooling starting in middle school at what point is it more cost efficient to sell the home, take a loss, and move to a better public school district. What if we had 2 children instead of one?

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grabiner
Advisory Board
Posts: 20550
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Financial Checkup

Post by grabiner » Sun Sep 10, 2017 3:36 pm

scorcher31 wrote:
Sun Sep 10, 2017 2:07 pm
Debt: 195k on 315k home, 3.5% interest

2. Considering the extra childcare costs may limit my ability to save, should we just try to wipe out the mortgage quickly to free up that money to channel into the taxable?
I wouldn't recommend it. You give up liquidity, and with this low a rate, you get little benefit. NJ doesn't allow a deduction for mortgage interest, but your marginal federal tax rate is probably 35% if you are in the AMT personal exemption phase-out, so your after-tax mortgage rate is 2.28%. Therefore, a mortgage prepayment frees up later money for taxable savings which grows at 2.28% after-tax. This is equivalent to buying a bond with a 2.28% after-tax yield; the bond is long-term because you won't be able to invest the money until the mortgage is gone.

Now, in your taxable account, you could buy Investor shares of NJ Long-Term Tax-Exempt, which currently yield 2.71%. (Admiral shares, with a $50K minimum, yield 2.81%.) There is some credit risk here, as most of the bonds are rated A and BBB, but the duration of 7 years probably means there is less interest-rate risk.

And with the extra costs limiting your ability to save, there is a greater value in keeping savings liquid. Paying down the mortgage would be more attractive if you had no liquidity needs.
David Grabiner

scorcher31
Posts: 8
Joined: Sun Mar 06, 2016 11:13 pm

Re: Financial Checkup

Post by scorcher31 » Sun Sep 10, 2017 3:55 pm

So initially I had 100k in my emergency fund but decided to move 50k into the taxable vanguard NJ tax free bond fund. In reading your advice I'm glad I made that decision earlier this year. I'm planning on keeping the taxable at 10% NJ tax free long term bonds, 20% international stock fund, and 70% total us stock market all admiral shares. Planning on staying the course even with the taxable fund, hoping not to need to withdraw until retirement or for real emergencies if I deplete my emergency fund for some reason.

Regarding my federal tax rate, Your probably right. Turbo tax doesn't tell me exactly what it is at, all I know is I hit alternative minimum tax.

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grabiner
Advisory Board
Posts: 20550
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Financial Checkup

Post by grabiner » Sun Sep 10, 2017 4:12 pm

scorcher31 wrote:
Sun Sep 10, 2017 3:55 pm
Regarding my federal tax rate, Your probably right. Turbo tax doesn't tell me exactly what it is at, all I know is I hit alternative minimum tax.
The way to find your marginal tax rate is to add $1000 to your income (or subtract $1000 from your deductions if that is what you are considering changing) in your tax software, and see what changes. Your marginal tax rate is not always the same as your tax bracket, because of phase-ins and phase-outs of income-based provisions.
David Grabiner

JBTX
Posts: 939
Joined: Wed Jul 26, 2017 12:46 pm

Re: Financial Checkup

Post by JBTX » Sun Sep 10, 2017 5:11 pm

scorcher31 wrote:
Sun Sep 10, 2017 2:07 pm
I am looking for input to see how we are doing financially. Not necessarily specific stock picks. I just started working ~3 years ago, wife has been working for a decade. We just paid off our student loans and cars and started saving up aggressively this year. We have a new baby on the way which I am both excited for and bit scared about financially. I'm afraid it may drastically slow down our savings at least until the mortgage is done or the baby is out of daycare.

Checking: 18k
Emergency funds: 50k
Debt: 195k on 315k home, 3.5% interest
No other debt.

Tax Filing Status: Married filing jointly
Tax Rate: ~28% with alternative minimum tax Federal, 6.37% State
State of Residence: NJ
Age:33/33

Asset allocation: 90% stocks / 10% bonds
International allocation: 20-30% of stocks

Current retirement assets 508k invested all in low expense passive index funds
Her 401k: 204k
His 401k: 73k
Her Roth IRA: 45k
His Roth IRA: 13k
Taxable Account: 173k

Annual Contributions:
$18k his 401k (1% Match)
$18K her 401k (6% Match)
$5.5k his Roth IRA
$5.5k her Roth IRA
$48k taxable Vanguard (minimum plus whatever is left over)

Annual combined income:335k (expect it to stay about this for quite some time)
Monthly Income (after taxes, health insurance and 401ks)~14.3k, assuming we only get 2 checks in the month and I haven't capped on social security

Monthly Expenses:
~5k/month for mortage/property tax/homeowners insurance (will be paid off in 4.3 years then will just have 1k property/insurance)
~500/month for utilities/cell/cable/internet
~500/month on groceries
~300/month on car insurance and gas
~1000/month on miscellaneous (home needs/ going out to eat/ decorations/clothes)

First baby on way, expect both of us to continue to work but expenses to increase for daycare, possibly private school middle school on up and college savings.
~2000-2500/month

1. How are we doing overall? Sometimes I feel like we are way behind, other times I feel like we are doing well.
Overall very well, especially if you can really save almost $100k per year.

2. Considering the extra childcare costs may limit my ability to save, should we just try to wipe out the mortgage quickly to free up that money to channel into the taxable?
No. 3.5% is pretty low. Especially assuming you can itemize deductions. Your after tax cost of debt will probably be around 2.5%. If you could find a 15 year at 2.75% or lower refi with low refi fees that might be worth doing but I wouldn't worry with it. Paying off a low rate mortgage should be among the lowest of priorities for your age.

3.Daycare is only for a short time so I'm fine with that expense. The public elementary school is fine and I would send me child there for free. The middle school/ high school is a bit rough to say the least. If we need to pay 20k a year for private schooling starting in middle school at what point is it more cost efficient to sell the home, take a loss, and move to a better public school district. What if we had 2 children instead of one?
Sinking $20k into private school is a lot, especially for 2 kids. A lot could change by the time he reaches middle school. Maybe your home is redistricted to better school. Maybe school gets better. You have plenty of time to get familiar with schools and houses in other districts. If you get to that point and nothing has changed then perhaps you consider moving. But that is a long way off.

CyclingDuo
Posts: 683
Joined: Fri Jan 06, 2017 9:07 am

Re: Financial Checkup

Post by CyclingDuo » Sun Sep 10, 2017 6:07 pm

scorcher31 wrote:
Sun Sep 10, 2017 2:07 pm
I am looking for input to see how we are doing financially. Not necessarily specific stock picks. I just started working ~3 years ago, wife has been working for a decade. We just paid off our student loans and cars and started saving up aggressively this year. We have a new baby on the way which I am both excited for and bit scared about financially. I'm afraid it may drastically slow down our savings at least until the mortgage is done or the baby is out of daycare.

Checking: 18k
Emergency funds: 50k
Debt: 195k on 315k home, 3.5% interest
No other debt.

Tax Filing Status: Married filing jointly
Tax Rate: ~28% with alternative minimum tax Federal, 6.37% State
State of Residence: NJ
Age:33/33

Asset allocation: 90% stocks / 10% bonds
International allocation: 20-30% of stocks

Current retirement assets 508k invested all in low expense passive index funds
Her 401k: 204k
His 401k: 73k
Her Roth IRA: 45k
His Roth IRA: 13k
Taxable Account: 173k

Annual Contributions:
$18k his 401k (1% Match)
$18K her 401k (6% Match)
$5.5k his Roth IRA
$5.5k her Roth IRA
$48k taxable Vanguard (minimum plus whatever is left over)

Annual combined income:335k (expect it to stay about this for quite some time)
Monthly Income (after taxes, health insurance and 401ks)~14.3k, assuming we only get 2 checks in the month and I haven't capped on social security

Monthly Expenses:
~5k/month for mortage/property tax/homeowners insurance (will be paid off in 4.3 years then will just have 1k property/insurance)
~500/month for utilities/cell/cable/internet
~500/month on groceries
~300/month on car insurance and gas
~1000/month on miscellaneous (home needs/ going out to eat/ decorations/clothes)

First baby on way, expect both of us to continue to work but expenses to increase for daycare, possibly private school middle school on up and college savings.
~2000-2500/month

1. How are we doing overall? Sometimes I feel like we are way behind, other times I feel like we are doing well.

2. Considering the extra childcare costs may limit my ability to save, should we just try to wipe out the mortgage quickly to free up that money to channel into the taxable?

3.Daycare is only for a short time so I'm fine with that expense. The public elementary school is fine and I would send me child there for free. The middle school/ high school is a bit rough to say the least. If we need to pay 20k a year for private schooling starting in middle school at what point is it more cost efficient to sell the home, take a loss, and move to a better public school district. What if we had 2 children instead of one?
Point #1: You are doing great! Really great. Congratulations and kudos to you.

Point #2: No, keep the mortgage as the rate is low.

Point #3: You've got years to worry about that, so at the moment forget about it and do nothing. Years ago, due to working overseas, it was costing us $26K a year for 2nd and 4th grade in a private school because we wanted our kids to learn English. In the end, it was enough of an expense that we decided to relocate back to the states in part to remove that private school expense. That allowed us to put the money that had been going to private school into college funds instead while the kids went back to public school. Our vote is not to pay for private K-12 school and sock it away for college education instead.

JSDNJ
Posts: 177
Joined: Wed Feb 04, 2015 5:17 pm

Re: Financial Checkup

Post by JSDNJ » Mon Sep 11, 2017 8:51 am

Really guy?

This post reaks of pretentiousness. You somehow managed to find a home in NJ under $400k. You are in your early 30s and earn more than your homes value and much more than your outstanding mortgage balance. You max out your 401k and your IRAs, have over half a million in retirement savings at 33. Nearly 20k sitting in a checking account and $50k in emergency funds.

Your question is how are you doing? You sometimes feel 'behind'?

You're probably top 2% in earnings and probably have a more complete and higher value portfolio than 99.9% of Americans.

You're fine.

What county/town are you in? With that level of income I don't know why you'd buy a home in a town with bad schools.

Also I'm assuming you're contributing to a traditional ira and then doing a back door?

MP173
Posts: 1792
Joined: Fri Dec 07, 2007 6:03 pm

Re: Financial Checkup

Post by MP173 » Mon Sep 11, 2017 12:36 pm

Do you have sufficient life and disability insurances?

Ed

ralph124cf
Posts: 1683
Joined: Tue Apr 01, 2014 11:41 am

Re: Financial Checkup

Post by ralph124cf » Mon Sep 11, 2017 12:40 pm

What pops out to me is the ROTH IRA contributions.

In general, if you have 401(k)s, your incomes are too high for IRAs, whether ROTH or traditional.

You can, of course, do back door ROTHs conversions. Check the WIKI.

Ralph

scorcher31
Posts: 8
Joined: Sun Mar 06, 2016 11:13 pm

Re: Financial Checkup

Post by scorcher31 » Mon Sep 11, 2017 10:32 pm

MP173 wrote:
Mon Sep 11, 2017 12:36 pm
Do you have sufficient life and disability insurances?
Ed
Actually no, and it may be something I seriously have to consider. It was something I wasn't too concerned with, because spouse has a good job, but now with the baby I may seriously need to reconsider at least until we reach financial independence
ralph124cf wrote:
Mon Sep 11, 2017 12:40 pm
What pops out to me is the ROTH IRA contributions.

In general, if you have 401(k)s, your incomes are too high for IRAs, whether ROTH or traditional.

You can, of course, do back door ROTHs conversions. Check the WIKI.

Ralph
We Currently both do backdoor roths yearly, which I learned from white coat investor
JSDNJ wrote:
Mon Sep 11, 2017 8:51 am
Really guy?

This post reaks of pretentiousness. You somehow managed to find a home in NJ under $400k. You are in your early 30s and earn more than your homes value and much more than your outstanding mortgage balance. You max out your 401k and your IRAs, have over half a million in retirement savings at 33. Nearly 20k sitting in a checking account and $50k in emergency funds.

Your question is how are you doing? You sometimes feel 'behind'?

You're probably top 2% in earnings and probably have a more complete and higher value portfolio than 99.9% of Americans.

You're fine.

What county/town are you in? With that level of income I don't know why you'd buy a home in a town with bad schools.

Also I'm assuming you're contributing to a traditional ira and then doing a back door?
I apologize if I came off as pretentious that was not my goal. I know on average we are doing well, I try to live by the ideals of white coat investor and bogleheads and am in a field with high burnout. I'm trying to work toward early financial independence quickly as possible. Most of our friends are dual income households that have each been making 6 figures for a decade plus and had no loans, where I just really started working a few years ago. This is really the only place I have where people talk about net worth and financial planning, our friends only speak about what they buy and my spouse has no interest in finances. I'm just trying to judge where we are at given I'm expecting a significant increase in required expenses, i.e. daycare. as I don't expect our numbers to be able to grow as quickly now.


There are a ton of homes under 400k in NJ. The reason the home is well under 400k is likely because it's a normal home with no frills in an area I feel is safe and with a minimal drive, but a poor school district. We grew up in poorly rated public schools although in the country and another state. I would prefer my child go to a public school as well, but obviously not if it's to the point of being unsafe. Either way the elementary is fine so I'm probably going to heed others advise and forget about it for years. By then maybe the district will change, there will be alternative options, etc. Depending on if we have one child or multiple perhaps it may be worth it to move when the time comes. If we sold I expect at least a 20-30k loss on the home plus closing costs for the sale and purchase of a new home.

JSDNJ
Posts: 177
Joined: Wed Feb 04, 2015 5:17 pm

Re: Financial Checkup

Post by JSDNJ » Tue Sep 12, 2017 9:25 am

scorcher31 wrote:
Mon Sep 11, 2017 10:32 pm
MP173 wrote:
Mon Sep 11, 2017 12:36 pm
Do you have sufficient life and disability insurances?
Ed
Actually no, and it may be something I seriously have to consider. It was something I wasn't too concerned with, because spouse has a good job, but now with the baby I may seriously need to reconsider at least until we reach financial independence
ralph124cf wrote:
Mon Sep 11, 2017 12:40 pm
What pops out to me is the ROTH IRA contributions.

In general, if you have 401(k)s, your incomes are too high for IRAs, whether ROTH or traditional.

You can, of course, do back door ROTHs conversions. Check the WIKI.

Ralph
We Currently both do backdoor roths yearly, which I learned from white coat investor
JSDNJ wrote:
Mon Sep 11, 2017 8:51 am
Really guy?

This post reaks of pretentiousness. You somehow managed to find a home in NJ under $400k. You are in your early 30s and earn more than your homes value and much more than your outstanding mortgage balance. You max out your 401k and your IRAs, have over half a million in retirement savings at 33. Nearly 20k sitting in a checking account and $50k in emergency funds.

Your question is how are you doing? You sometimes feel 'behind'?

You're probably top 2% in earnings and probably have a more complete and higher value portfolio than 99.9% of Americans.

You're fine.

What county/town are you in? With that level of income I don't know why you'd buy a home in a town with bad schools.

Also I'm assuming you're contributing to a traditional ira and then doing a back door?
I apologize if I came off as pretentious that was not my goal. I know on average we are doing well, I try to live by the ideals of white coat investor and bogleheads and am in a field with high burnout. I'm trying to work toward early financial independence quickly as possible. Most of our friends are dual income households that have each been making 6 figures for a decade plus and had no loans, where I just really started working a few years ago. This is really the only place I have where people talk about net worth and financial planning, our friends only speak about what they buy and my spouse has no interest in finances. I'm just trying to judge where we are at given I'm expecting a significant increase in required expenses, i.e. daycare. as I don't expect our numbers to be able to grow as quickly now.


There are a ton of homes under 400k in NJ. The reason the home is well under 400k is likely because it's a normal home with no frills in an area I feel is safe and with a minimal drive, but a poor school district. We grew up in poorly rated public schools although in the country and another state. I would prefer my child go to a public school as well, but obviously not if it's to the point of being unsafe. Either way the elementary is fine so I'm probably going to heed others advise and forget about it for years. By then maybe the district will change, there will be alternative options, etc. Depending on if we have one child or multiple perhaps it may be worth it to move when the time comes. If we sold I expect at least a 20-30k loss on the home plus closing costs for the sale and purchase of a new home.


I hear you, but like I said you're doing much much better than 90+% of the population. My reference to $400k in NJ may have been a generalization but for the most part it's true.

I paid mid $400s in Union County for 1300sf and my wife and I make ~$150k combined. Nothing big or extravagant about my home but the schools are some of the best in the state. I suppose out west jersey you could get more for your money.

I wouldn't expect the district to change much in the next few years. Why are you expecting to sell at a loss if t comes to that? What county are you in?

livesoft
Posts: 55944
Joined: Thu Mar 01, 2007 8:00 pm

Re: Financial Checkup

Post by livesoft » Tue Sep 12, 2017 10:24 am

This is all I needed to see:
Annual combined income:335k (expect it to stay about this for quite some time)
You all are doing GREAT!

Your first child is a great accomplishment, too, and will not put even a dent in your future finances. Nor will a 2nd child. I'm speaking from experience from living on Long Island at about the same ages w/kids as you and your family.
This signature message sponsored by sscritic: Learn to fish.

FrugalConservative
Posts: 29
Joined: Thu Aug 17, 2017 9:44 am

Re: Financial Checkup

Post by FrugalConservative » Tue Sep 12, 2017 12:19 pm

I'd sell and get into a good school district especially with your incomes. What is a 20K hit ( from selling home) 10 years from now honestly, especially if you can save 100K a year, your argument that you dont want to lose money is foolish at best?

The last thing I would want is to send my kids to private school knowing full well I could afford a nice house in a good school district.

You sound financially prudent but you dropped the ball big time buying a house in a garbage school district, especially if you knew you were having kids.

bigred77
Posts: 1864
Joined: Sat Jun 11, 2011 4:53 pm

Re: Financial Checkup

Post by bigred77 » Tue Sep 12, 2017 12:43 pm

Instead of doing 48k into taxable savings I would drop 48k into a 529 plan once you have the SS# for your child. Just do it for that years dollars earmarked to taxable savings. Take advantage of 2 decades worth of tax free gains and just consider future college expenses basically handled. I would do the same in future years if you have more children.

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