What would you do? #5 - Where to save?

KathrynHannah · **What would you do? #5 - Where to save?**

You are meeting with someone who has asked your advice on finances. They tell you that they have an extra $12,000 a year after taxes because of a recent raise. They don't want to increase their standard of living. They want to begin saving ... but they don't know where to start. They are in their early 30's, have 18 month old twins, mom stays at home. They owe $150,000 on their mortgage (30 yr mortgage), have $0 saved for retirement, $0 in investments and they are thinking about starting an education fund for their kids. ETA: They have no debt and 6 months of emergency fund saved already.

How would you advise them to spilt up the $12,000 / yr by percentages.

Retirement savings ____%
Kid's education ____%
Extra payments on the mortgage ____%
Investments ____%
Other ?

(You can put some percentages at 0 but they all need to add up to 100)

What would you do?

Guccirush · 03-08-2008, 03:49 PM

Retirement!!!!!!!!

and of course and emergency account. But If they are already in their 30s and have no retirement than they need to go into overdrive. By the time they are in their 60s Social Security may not exist....of course it barely pays anything now, but it still helps a lot of seniors.

So I would not pay anything extra on the mortgage but do 50/50 for Retirement and Emergency Savings (until they have 6 months of living expenses saved.) and then do 100% towards retirement.

KathrynHannah · 03-08-2008, 03:51 PM

Quote:

Originally Posted by Guccirush

.....and of course and emergency account. ....

Good point. I need to edit the original to say they have their emergency fund. Thanks!

Kim · 03-08-2008, 03:56 PM

If they DO have an emergency fund, I'd put 100% into retirement. Being in your 30s with absolutely nothing saved for retirement is not good.

Happymom · 03-08-2008, 05:33 PM

I would do 50% on retirement
30% to mortgage and 20% to investments

Maman1 · 03-09-2008, 01:34 PM

Every bit to retirement.

If they want to have a little flexibility for their kids' college, they can use a Roth IRA for some of that retirement because it would be easy to draw out some money to help with college if they really feel in a position to do so (I'd be surprised if they were at this rate, but you never know). But they need to get going on that retirement, especially if the company matches.

KathrynHannah · 03-09-2008, 04:16 PM

My advice would be ...

70% towards retirement. $8400 a year invested until they were 65 at a very conservative rate of 6.5% would still give them over a million dollars at retirement.

10% mortgage (Which would mean turning their mortgage into a 15 yr. term)

10% kid's education (Would give them $36,000 once the girls turn 18 based in 6.6% - won't pay for the whole thing by any means but will help)

10% investments

This would also make them mortgage free when the girls go off to college.
Anyone else?

aleise02 · 03-09-2008, 04:22 PM

Retirement- 60%
Extra Payments on Morg- 20%
Investments-20%

I follow Suze Ormans rule about not saving for a childs education until you are well prepared for retirement etc.

stacia · 03-09-2008, 06:33 PM

70% retirement! I mean really- in their 30s and NOTHING saved! I'd be scared!
20% College funds
10% investments/savings on top of what they already save

Cookie2 · 03-09-2008, 08:13 PM

100% retirement, especially if there is a company match.

They also need to make sure they are fully insured. That would mean hefty life insurance on both parents and a full disability insurance policy on the working dad.

Dad will still be working when the twins go to college so they will be able to divert the amount that they were putting into retirement toward tuition plus mom can work part-time while the kids are in college, if she wants.

If they are planning on early retirement (always a nice option), in 10 years they need to start investing in non-retirement plans.