High income earner: What to do with an extra $50,000?

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snowmac
Posts: 1
Joined: Tue Sep 15, 2020 3:06 pm

High income earner: What to do with an extra $50,000?

Post by snowmac »

Hi Bogleheads,

I'm a 31 year old software engineer. I recently opened my own (1099 based) LLC consulting firm. I estimate to gross this year in total of about $100,000 on top of the $150,000 I've already earned. I have a CPA to help me with taxes. I project next year I'll have the ability to gross between $250,000 and $400,000 in addition my wife expects to earn about $50,000 from teaching.

What I'm looking for is guidance on how to build real wealth. Our finances look like this:

Wife's teaching salary: $2,500
Pre-tax Self employment income: $16,000
Estimated post tax income: $12,000

Total income: $14,500 a month

Expenses generally run $7,000 a month and they cover a wide range of things: mortgage, food, eating out, going to costco, gym membership, coffee, entertainment etc...

We generally do NOT budget. It is hard to budget and track every dollar and when we do we often feel bad about how often we eat out. We have a bill sheet with due dates and all of that, we use that to manage our money.

Monthly expense breakdown:
* Household Expenses: $7000
* Monthly donation to our church: $1500-2000
* 401k / IRA contribution: $1500
* Savings: $1500-2000
* General money burn: $1000-2000 a month (variety of things, savings, car repairs, unexpected things we don't want to use savings for, buying new stuff, "consumerism", massages)

Our 401k was going to a fidelity index fund, but now that I'm recently self employed, all of that will go to vanguard index funds.

Our accounts look like:
* Checking $1000-8000 revolving balance
* Credit cards: $0-1000 depending on spend activity; pay off any balances monthly, mostly use for gas to get points
* Savings: $55,000; target for 2020 is $65,000
* Retirement: $50,000
* College fund: $10,000
* Mortgage of $250,000 of a $350,000 house (been here 5 years)

By opening this LLC, I've secured two clients. This will increase my income by $50,000 this year and by $200,000 next year. I'm considering mid year dropping a client so I can still get the 199A 20% tax deduction, but need to talk to my CPA about that.

This year the plan is to:

* Switching all income to LLC (I have a complicated situation); thus being 'self employed'
* Open separate bank account to stuff all self employment taxes into (so we don't spend it before quarterly payments are due)
* Increase contributions to retirement by investing in a SEP-IRA by investing $57,000. This is will be most of the new income.
* Dump as much money into some other index funds; maybe an admiral fund?

TL;DR;

I make a lot of money; I've got an extra $50,000 I'm planning on investing in an SEP IRA (all of it), next year I expect to have an extra $50,000 to $150,000 of extra money; what do I do with all that money?

Constraints:

1. I do not have time. I have a toddler, I work 60-100 hours a week. I cannot do anything ACTIVE in terms of management. I need, "direct deposit enabled" from my invoicing platform to the investing account.
2. I want a set it and forget it model
3. Good returns at least 7% or more

General interests:
* I am interested in real estate but the current situation is concerning with the CDC halting rent evictions until December 2020. Thus the market seems like a better idea. I also don't have a lot of time on my hands
* Tech stocks
* Emerging tech, bio stocks, emerging markets
* Bitcoin?

Long term goals:

1. Build wealth so that our money can supply enough money to cover all the basics (about $4,000 a month)
2. Build a fund to buy another house in the next 3-10 years (we're not sure if we're going to have more kids; if we do, we need a bigger house, if not we'll stay)
3. House projects (bathrooms remodel, yard play equipment, new baseboards, shed, hot tub?)
4. Lose 100 lbs

FIRE? IDK, but we like the FI part of FIRE.
Tingting1013
Posts: 228
Joined: Mon Aug 24, 2020 5:44 pm

Re: High income earner: What to do with an extra $50,000?

Post by Tingting1013 »

M1 Finance might be the perfect platform for you.

https://support.m1finance.com/hc/en-us/ ... t-Settings

You create a “pie” with a few funds and target allocation %s. And then with every direct deposit into the account the platform automatically makes investments for you according to your pie. No manual rebalancing or attention from you needed at all.
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happenstance
Posts: 166
Joined: Sun Jul 26, 2015 11:24 am
Location: NYC

Re: High income earner: What to do with an extra $50,000?

Post by happenstance »

Good luck with your consulting gig! That sounds like a new and interesting opportunity.
snowmac wrote: Tue Sep 15, 2020 3:38 pm I make a lot of money; I've got an extra $50,000 I'm planning on investing in an SEP IRA (all of it), next year I expect to have an extra $50,000 to $150,000 of extra money; what do I do with all that money?
1. Determine your financial goals (what they are, when they are, and a ballpark estimate of how much you need)
2. Look at what types of accounts you have available (SEP-IRA, 401k, taxable accounts) and prioritize maxing out the tax-advantaged ones
3. Create an asset allocation to use across all of those accounts
4. Select low-cost, diversified index funds (see below)
5. Save early and often
6. Wait for the magic of compounding
Constraints:

1. I do not have time. I have a toddler, I work 60-100 hours a week. I cannot do anything ACTIVE in terms of management. I need, "direct deposit enabled" from my invoicing platform to the investing account.
2. I want a set it and forget it model
3. Good returns at least 7% or more
1. After some initial setup, passive investing is really just transferring the money and directing the investment.
2. You can automate the investing at many brokerages with automatic investment of fixed dollar amounts. In total this can be about 5 minutes/month.
3. Nobody can guarantee a 7% CAGR, and anybody who does is scamming you. Investing is inherently risky; you might earn more than that, or you might earn less.
General interests:
* I am interested in real estate but the current situation is concerning with the CDC halting rent evictions until December 2020. Thus the market seems like a better idea. I also don't have a lot of time on my hands
* Tech stocks
* Emerging tech, bio stocks, emerging markets
* Bitcoin?
None of these (except for a small amount of play money, but that requires time to manage). Almost all of the things you list here are speculative.

Buy the whole market: either some proportion of VTSAX/VTI (Vanguard Total Stock) and VTIAX/VXUS (Vanguard Total International Stock), or VTWAX/VT (Vanguard Total World). In your tax-advantaged accounts, VBTLX/BND (Vanguard Total Bond Market).
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Watty
Posts: 20471
Joined: Wed Oct 10, 2007 3:55 pm

Re: High income earner: What to do with an extra $50,000?

Post by Watty »

snowmac wrote: Tue Sep 15, 2020 3:38 pm I make a lot of money; I've got an extra $50,000 I'm planning on investing in an SEP IRA (all of it), next year I expect to have an extra $50,000 to $150,000 of extra money; what do I do with all that money?
....
Savings: $55,000; target for 2020 is $65,000
I did not try to wade through all the details but when you are running your own business you should have a very large emergency fund since sooner or later you may have a few lean years and you can run into situations where you unexpectedly lose a big customer. It would be good if you could build that up to a years expenses and more would be better.
snowmac wrote: Tue Sep 15, 2020 3:38 pm 4. Lose 100 lbs
I have never used then but you might look into a personal trainer or nutrition expert.

In addition to all the other reasons the extra weight may make it difficult or impossible to get life and disability insurance and your family is depending on your income a lot.
ddurrett896
Posts: 1331
Joined: Wed Nov 05, 2014 3:23 pm

Re: High income earner: What to do with an extra $50,000?

Post by ddurrett896 »

snowmac wrote: Tue Sep 15, 2020 3:38 pm Long term goals:

1. Build wealth so that our money can supply enough money to cover all the basics (about $4,000 a month)
2. Build a fund to buy another house in the next 3-10 years (we're not sure if we're going to have more kids; if we do, we need a bigger house, if not we'll stay)
3. House projects (bathrooms remodel, yard play equipment, new baseboards, shed, hot tub?)
4. Lose 100 lbs

Emergency Fund

Total income: $14,500 a month
Emergency Fund (6 months): $87,000
Emergency Fund (Current): $65,00
Park $22K here.

Retirement
Current: $50K
By age 35 you should have 1x salary or around $200K.
$1.5K/month x 48 months (age 32, 33, 34, 35) = $72K.
Park 38K here and increase your saving rate.
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