What should I do with my 6% raise?
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Anonymous
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Here are our main details, I'm trying to decide how to use my 6% raise (and in general any extra money we have each month).
Ages: Early/mid 40s Kids: Ages 8 and 4, both in public school HHI: $260k Mortgage: $3600 (plus a mortgage on a condo, offset by rental income with a small profit) Joint 401k/IRA: $650k College Savings: $35k Emergency Savings: $25k Debt: No credit card or student loans, $330/month car payment (1 year from paid off) I know that we are low in college savings so I want to build that up, but we will soon get a small inheritance ($100k) that we will put towards college, and are also thinking of our condo as a back-up plan (it has already doubled in value and we can sell it anytime for a hefty profit even with capital gains). For my 401k my employer puts in 5% and I currently put in 5%. We have around $35k in home improvements we'd like to make. Should I increase my monthly 401k contributions more? Jack up the monthly college savings? Focus on the home improvements first? |
Anonymous
| Throw more money at the car loan until it's gone. Then reassess. |
Anonymous
But it's basically a no-interest loan. |
Anonymous
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If the car is a no interest loan I would take a look at your emergency fund and make sure it is adequate for 6 months expenses if you are in a stable job, and a year if you are in an unstable job.
If you are all set with your emergency fund I would put the rest to your retirement account until you hit the federal max ($18k this year? double-check). Once you hit the federal limit any left over $ goes to your renovation fund. I wouldn't worry about college if you are 100% sure about the inheritance and plan on continuing monthly contributions. |
Anonymous
| Pick up a hobby, learn to play the piano, take singing lessons. |
Anonymous
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You need to
Max put your 401k contributions before you do anything else. |
Anonymous
Are you a one or 2 income household? For us, maxing out 401k is non-negotiable. We contribute 36k each, plus our employers match. We are 10yrs younger and are nearly double your retirement. To me, Yiur retirement is very slim for your age/income. |
Anonymous
| You need more in college savings. 8yo is only ten years away from college. |
Anonymous
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Put another 2% each into the 401k at least. Rest to college savings.
Every time I get a raise I up the 401k by a present or two. |
Anonymous
| Why don't you max out your 401k contributions? |
Anonymous
| Agree with maxing out your 401K, but your emergency saving are very low. They barely cover six months of mortgage. |
Anonymous
Because I can't afford to? With my employer automatically putting in 5% I've been focusing on putting some money in college savings while building back up emergency savings (which we had to zero out in order to refinance a few years ago). That's kind of the point of my question. We do not have enough money to completely max out 401k or college savings, so I'm trying to figure out how to allocate the money in my raise. I am also accounting for the fact that we can sell our condo for at least a $250k profit if we needed to (it is in a very desirable part of DC), and we'll be getting an inheritance of around $100k in the next 5 years. |
Anonymous
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OP again, I should add that DH's job (which is $160 of our HHI) is very stable. Mine is less so but still stable. We both are in fields that it would not be difficult to find another job if we lost our current ones, so I am not that nervous about our emergency savings. We also have $25k in stock that could be easily accessed if we needed it.
We both lost a good amount of our early 401k plans in the 2008 crash, which accounts for the lower amount there. Also, we have been paying for daycare until this fall, so we now have some extra money there to play with. |
Anonymous
| Max out 401k. |
Anonymous
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If it were me, I would use the entirety to build your emergency fund *then* I would put the entirety toward your retirement. I would continue to fund college at the level you do now and put any windfall toward that.
The priorities are emergency funding and retirement plan. I'm your age, and for fwiw, we are somewhat similar in our finances with a bigger college fund for one child, more emergency money, no inheritance or condo. I'm uncomfortable with our level of retirement and we're kicking it up a lot in the next decade. You should do the same. |