What to do with cash?

[stackingtens]

Hey all!  Got a $ question that I'd love some advice/discussion about.  For background, I used to post more on H&F before a severe injury where I stepped away for a few years. But-since the pandemic, I've started to read again and have always appreciated the wisdom here, and honestly, don't really have another great outlet for talking about finances like this.

DH and I own a single family home in a desirable neighborhood in a community with absolutely nothing for sale, and buyers desperate to buy.  We have renters in the house through July 2022, because our dream house came on the market a few years ago and we jumped.  We had to rent the house immediately to make our finances work out.

We are planning to list and sell this home in the next few weeks, even though the lease is still in place and must be honored.  The main motivation here is that we can avoid paying capital gains tax if we close before December, as we will have lived in the house for enough time over the last few years.  For a variety of reasons, our realtor is confident that it will sell even with the lease in place for another year or so.

Assuming all goes well, we stand to make somewhere between $150k and $200k cash from the sale and are not sure what to do with it.  What I'd like to do with it is a master bathroom at our current house... but DH would prefer to wait a few more years.  I'd also like to buy a house at the nearby lake (for vacations/AirBnB) but he also wants to wait a few more years.  Buzzkill. Hahaha!

We both have 401k's with match and we contribute enough to maximize our match each year, if not a small bit more.   I also have a Roth that I max out each year.  We have 529s for both of our kids.    We are 37 and 36 and are doing well (only debt will be mortgage and our payment is very manageable) day to day, but have never had this kind of cash to sock away.  Our savings account is healthy enough, but we only contribute to the 529s when we have extra, or when we receive $ from relatives.  Should we contact a financial advisor and do some "real" investing?  I assume we should do a little of everything (529s, retirement, invest) but I wasn't exactly expecting this kind of cash so I am not sure where to start!  What else should I be thinking about?  WWYD?

[numbers]

A financial advisor would help with the whole picture of your finances.

My first thought is: retirement, then 529s, then investments.

You mentioned that you contribute enough to get the full match, which is fantastic, but it sounds like you could potentially contribute more there.

After retirement, I would consider adding a small chunk to each kid's 529 account if that's a priority for you.

Then I would invest the remaining amount.

[coffee]

If you are on track with your retirement, and have no actually plans with that money, I would "fully" fund my kids college now.
If you put 50% of the target college cost it will multiply in 10 years, so you would get the cost at a 50%off , if that makes sense Plus, it is another milestone/ financial goal you don't have to worry about it anymore during the rest of your life.

But that's just me being a little hardcore, my husband would laugh really hard and instead he would take me traveling thee world I'm sure we would still fully fund at least one of them LOL.

[ohgillian]

Do you think you'll do the primary bathroom or the lake house in the next few years? Or do you think "wait a few years" means "never"?

[stackingtens]

Feb 12, 2021 11:46:50 GMT -5 ohgillian said:

Do you think you'll do the primary bathroom or the lake house in the next few years? Or do you think "wait a few years" means "never"?

We had planned savings to do the bathroom in 3-5 years.  I just figured we should accelerate that, but my husband could also go to the bathroom in a shed and not care... ha!  The lake house is a dream and honestly depends on the right property coming on the market-they don't turn over that often. So it's going to end up being a "jump" moment if/when the right place comes available, but my expectation is that he considers it a 5-10 year plan.

[stackingtens]

Feb 12, 2021 11:44:40 GMT -5 coffee said:

If you are on track with your retirement, and have no actually plans with that money, I would "fully" fund my kids college now.
If you put 50% of the target college cost it will multiply in 10 years, so you would get the cost at a 50%off , if that makes sense Plus, it is another milestone/ financial goal you don't have to worry about it anymore during the rest of your life.

But that's just me being a little hardcore, my husband would laugh really hard and instead he would take me traveling thee world I'm sure we would still fully fund at least one of them LOL.

This is the stuff I don't know enough about, so thank you!  My youngest would be going to college in 10 years, so it sounds like now's the time to beef that amount up.  My husband is the hardcore one and I'm over here planning remodels and vacations, so I figured if I had an informed plan then maybe we can do some of both! 

[stackingtens]

Feb 12, 2021 10:36:24 GMT -5 numbers said:

A financial advisor would help with the whole picture of your finances.

My first thought is: retirement, then 529s, then investments.

You mentioned that you contribute enough to get the full match, which is fantastic, but it sounds like you could potentially contribute more there.

After retirement, I would consider adding a small chunk to each kid's 529 account if that's a priority for you.

Then I would invest the remaining amount.

Yes, we probably could add more to retirement-I'm not great at knowing how much is enough, so we've kinda done the obvious stuff (401k, Roth) and nothing extra.  It's so hard to know how to divide things up!  

[ohgillian]

Feb 12, 2021 14:38:59 GMT -5 stackingtens said:

Feb 12, 2021 10:36:24 GMT -5 numbers said:

A financial advisor would help with the whole picture of your finances.

My first thought is: retirement, then 529s, then investments.

You mentioned that you contribute enough to get the full match, which is fantastic, but it sounds like you could potentially contribute more there.

After retirement, I would consider adding a small chunk to each kid's 529 account if that's a priority for you.

Then I would invest the remaining amount.

Yes, we probably could add more to retirement-I'm not great at knowing how much is enough, so we've kinda done the obvious stuff (401k, Roth) and nothing extra.  It's so hard to know how to divide things up!  

I'm kind of a broken record on this, but I really love our Personal Advisor at Vanguard; this is the kind of stuff she helps me think through. What our goals are, what the timeframe is, what we need for them, etc. And she isn't just "save it all." She's very much in tune with what our goals are, and helps us figure out how to do them, such as when I wanted more $ for travel she helped me figure out how to do it.

I think the short answer is that I wouldn't spend the $150k, no, not if I didn't have a good sense that retirement and college were in hand. But that's me. 

[isabel]

I have a somewhat similar scenario going, so I’ll share with you what we are thinking...

DH is receiving the payout from a trust this month. It’s less than you’re expecting to get, but still in the six figure range.

We are currently discussing this with our Vanguard advisor, as we have most of our funds invested with them and use their personal advisory services.

For retirement, we don’t have a ton of money set aside, but as of this year we are maxing out 401k contributions to the IRS limit (so $39k per year total). Per Vanguard, this is enough to give us a 94% likelihood of reaching our savings goal. We were expecting to put a large chunk of this cash toward retirement, and we will still do some, but it’s looking like it’s not necessary to throw the majority of it there. We’re thinking $50k right now.

With roughly $20k for our older son (5yo) and $10k for our younger son (3yo)currently invested, an investment of $10k each from this cash, plus $300 per month into each account, will get us to our goal for college savings. We are willing to pay for in state tuition/room & board and will be able to pay for that in full with these accounts. If they go out of state or private, we will cash flow the additional costs and/or have them take out loans. Meeting our college goal is of lower importance to me than retirement, so $10k is probably the max we’re willing to do, even if we end up finding that it doesn’t quite get us there.

I won’t get into our plans for other things since they don’t really apply, but maybe that will give you a good idea of numbers and how to divide up some of it.

Personal Capital, once you have it all set up, is a great tool to run numbers like this. You can input different scenarios and it will tell you how likely you are to meet the goal you’ve set.

If I were you, I would take a hard look at retirement. If you’re contributing to the full employer match, that’s great, but often employers only match 3-6%. That’s not a ton if that’s all you’re doing, so it might be really helpful long term to consider sinking a significant portion of this into retirement.

[isabel]

ohgillian, who do you talk to at Vanguard? We have talked to a few different ones and I think we’ve settled on someone we like, but perhaps yours is worth setting up an appointment with too. I’d really prefer to talk to the same person every time; we just need to decide who we want that to be.

[ohgillian]

Feb 12, 2021 14:53:36 GMT -5 isabel said:

ohgillian , who do you talk to at Vanguard? We have talked to a few different ones and I think we’ve settled on someone we like, but perhaps yours is worth setting up an appointment with too. I’d really prefer to talk to the same person every time; we just need to decide who we want that to be.

They assigned us a Personal Advisor. Do you not have that? I have learned from ours that basically they are assigned clients based on wealth groups -- so like if your total $ at Vanguard is $400,000, you'd be assigned someone who works with clients in the $250,000 to $500,000 range. (I made that range up -- I don't actually know how the ranges go.) Feel free to PM me if you want to chat further and I'm happy to share more about the particular advisor we work with. She was just randomly assigned to us but we really love her and have been with her for several years. 

[sadlebred]

If it were me I'd:
1. Renovate the primary bathroom. 20% (guesstimate)
2. Put money towards retirement. Max out ROTHS if you are eligible and put some money aside to fully fund them for 2-3 years. 40% of the money
3. Put money away towards the downpayment of the lake house 20% of the money.
4. If you have to, put some towards the kids college. There are other ways to pay for college, and plenty of kids go to college with no help from their parents, so this is a lower priority. 10%
5. Invest 10% in general investments.
6. Take a small amount and build your DH an outhouse, so you can have the bathroom all to yourself.

[stackingtens]

Feb 12, 2021 14:52:03 GMT -5 isabel said:

I have a somewhat similar scenario going, so I’ll share with you what we are thinking...

DH is receiving the payout from a trust this month. It’s less than you’re expecting to get, but still in the six figure range.

We are currently discussing this with our Vanguard advisor, as we have most of our funds invested with them and use their personal advisory services.

For retirement, we don’t have a ton of money set aside, but as of this year we are maxing out 401k contributions to the IRS limit (so $39k per year total). Per Vanguard, this is enough to give us a 94% likelihood of reaching our savings goal. We were expecting to put a large chunk of this cash toward retirement, and we will still do some, but it’s looking like it’s not necessary to throw the majority of it there. We’re thinking $50k right now.

With roughly $20k for our older son (5yo) and $10k for our younger son (3yo)currently invested, an investment of $10k each from this cash, plus $300 per month into each account, will get us to our goal for college savings. We are willing to pay for in state tuition/room & board and will be able to pay for that in full with these accounts. If they go out of state or private, we will cash flow the additional costs and/or have them take out loans. Meeting our college goal is of lower importance to me than retirement, so $10k is probably the max we’re willing to do, even if we end up finding that it doesn’t quite get us there.

I won’t get into our plans for other things since they don’t really apply, but maybe that will give you a good idea of numbers and how to divide up some of it.

Personal Capital, once you have it all set up, is a great tool to run numbers like this. You can input different scenarios and it will tell you how likely you are to meet the goal you’ve set.

If I were you, I would take a hard look at retirement. If you’re contributing to the full employer match, that’s great, but often employers only match 3-6%. That’s not a ton if that’s all you’re doing, so it might be really helpful long term to consider sinking a significant portion of this into retirement.

Thanks, this is definitely helpful.  Our perspective for college is similar, though we are expecting my MIL to contribute significant funds for college.  We don't want to be unprepared, however, if that changes, but we aren't committed to having massive amounts of college savings.  DH also doesn't want all the college funds to be in a 529 depending on what our kids end up doing, so it may be that we need to discuss using some of this money to set aside for our kids without putting it all in a 529.

[stackingtens]

Feb 12, 2021 17:38:45 GMT -5 sadlebred said:

If it were me I'd:
1. Renovate the primary bathroom. 20% (guesstimate)
2. Put money towards retirement. Max out ROTHS if you are eligible and put some money aside to fully fund them for 2-3 years. 40% of the money
3. Put money away towards the downpayment of the lake house 20% of the money.
4. If you have to, put some towards the kids college. There are other ways to pay for college, and plenty of kids go to college with no help from their parents, so this is a lower priority. 10%
5. Invest 10% in general investments.
6. Take a small amount and build your DH an outhouse, so you can have the bathroom all to yourself.

I like the way you think.  Haha! We had set up a separate savings line item for the bathroom, but I'm over here like THIS BATHROOM WILL IMPROVE OUR QUALITY OF LIFE 100% so we should do it and pay cash and be done... and he's like "let's stick to the savings plan".  But I hadn't thought about just setting aside downpayment money for the future lake house separately.  That makes a ton of sense.  

[stackingtens]

Following up with myself-we sold the house last night and our cash takeaway looks to be $176,000.  We're set up with a meeting with a financial advisor after closing.  I ran a handful of scenarios based on percentages thanks to your suggestions, and I think DH is on board to socking some cash away for the bathroom project, even if we want 2-3 years to do it.  We're still struggling with how much to dedicate to college savings, so hopefully the advisor can help with that, but I think we both agree that our largest chunk should benefit retirement.  
Thanks for all the help!

[ohgillian]

Mar 1, 2021 8:45:16 GMT -5 stackingtens said:

Following up with myself-we sold the house last night and our cash takeaway looks to be $176,000.  We're set up with a meeting with a financial advisor after closing.  I ran a handful of scenarios based on percentages thanks to your suggestions, and I think DH is on board to socking some cash away for the bathroom project, even if we want 2-3 years to do it.  We're still struggling with how much to dedicate to college savings, so hopefully the advisor can help with that, but I think we both agree that our largest chunk should benefit retirement.  
Thanks for all the help!

I really love when people update. Congrats on the house sale and on smart financial planning for next steps!

[ellipses84]

Congrats and great update!