David is questioning how to better manage his spending. He’d like a stronger framework to think through budgeting challenges.
Elisa and her husband bought a home, and now they’re saving extra income every month. She has a pension and her husband is an entrepreneur. How much should they be saving for retirement and how should they invest their extra money?
Geoff invested primarily in taxable brokerage accounts for the last twenty years. He’s built a $6 million portfolio and reached financial independence. He wonders about the smartest strategy for withdrawing from those taxable brokerage accounts to efficiently manage capital gains?
Jenni and her husband are planning on buying their next home in a few years. She wants to know if I-bonds are a good way to save for the down payment and closing costs.
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
P.S. Got a question? Leave it here.
Here are the details:
David asks (at 2:28 minutes): I’m really confused and I can’t believe that no one has really solved the budgeting issue among the whole savings and podcast crowd.
I like your “anti-budget” and I think that’s a key part of it but that’s a little too small or simple for me. I’ve tried other budgets that have involved cash and envelopes, as well as Quicken, and Mint budgeting options which take too much time and don’t give me much feedback.
Can you spend some time discussing other budgeting processes, issues, ways to analyze your finances that may give me some of the answers that I am looking for?
I think the first issue I’m looking for help with is: “How much can I afford to spend this weekend”? For example, if something popped up earlier in the week, how do I think about going to that movie this weekend?
The other thing that I think I’m missing are the items that we sign up for these days: The subscriptions, the phone bill – what are the expected values that come right after how much I save?
Elisa asks (at 33:06 minutes): My husband and I aren’t sure what to do with our extra income.
We just bought a house and all of our extra income was going into our “house fund”. We have funded a $10,000 “emergency account” and now have between $1,000 and $1,500 leftover every month. I’ve also been contributing to a Roth and our accountant says that next year, we won’t be able to contribute to the Roth because we’ll be over the income limits.
My husband owns his own business, and I work full time. My employer contributes 12% of my salary into a pension fund so I have some retirement funds but my husband hasn’t been contributing to a retirement fund.
I have two questions:
- How much should we be contributing to retirement?
- Where should we be putting our additional funds? Should we put them in retirement accounts or an IRA?
Geoff asks (at 55:16 minutes): I’m 50 years old and I’ve reach financial independence through what I think of as “Dumb FI”.
During the first dot com boom twenty years ago, I was lucky enough to sell a small web company for approximately $500,000. I used that money to buy individual stocks, reinvested the dividends and pretended that money wasn’t there.
For the last twenty years, I continued to work in the tech industry, continued to live within the means of that employment, saved a little bit more, and let that original amount grow.
Today, I’ve got about $6 million in investments, plus a paid off house.
Of that $6 million, only around $1 million is in retirement accounts. The other $5 million is in taxable brokerage accounts, and a huge chunk of that is capital gains.The most extreme example is buying Microsoft stock for $50,000 and that’s now worth $820,000.
In terms of current income: We get dividends of about $60,000 a year. I consult a few hours a week and my wife tutors at the elementary school for fun. That brings us another $50,000 or $60,000 a year.
I’m kind of at a loss for strategies to realize those capital gains in a way that makes sense. For example, do I sell stock every year – even if I don’t need the cash – to spread out the gains? Is there a strategy to which stocks I should sell first?
I like simplicity, peace of mind, and don’t want to deal with this stuff – I’d rather be hiking, skiing and travelling, instead of poring over spreadsheets. I want to be smart about this but not obsess over the perfect optimization.
Jenni asks (at 1:08:32 minutes): I recently learned that I-bonds have reached over 7% interest. I’m thinking my husband and I should buy the maximum allowance of $10,000 each.
A bit about us: We recently refinanced our mortgage to 2.875% with the thought that we would stay here for another 5 years and then move to a larger place. We have one child and will try for another in a year. If we’re both still working from home in 5 years, our 3 bedroom house will feel small..
If we stay in our current high cost of living area, we’d be looking at a $200,000, 20% down payment. We have at least $140,000 equity in our current place and some market estimates put our equity at almost $200,000.
I-bonds seem like a great option to help us save for a down payment and closing costs in five years.
I see three potential downsides:
- The 7% seems to be reset every six months. Is there a risk that it will substantially drop?
- With I-bonds, we can’t cash out for a year. This seems fine as I am fairly certain that we would not want to touch this for a year – we have a $40,000 emergency fund that would cover 6 months of expenses and were recently able to weather a layoff by tightening up our belts and living on one income and not touching this income. Our combined income is now $270,000.
- There is the greater risk of wanting to move sooner than five years. We could probably make due without the exact $20,000 in funds if we really wanted to move sooner – we have $130,000 in a taxable brokerage account, $100,000 in Roth funds where we could tap into our contributions without penalty, although that’s not our preference. We’re saving those funds for Coast FIRE. The 3 month interest penalty for I-bonds for cashing out before five years seems quite small.
Are I-Bonds a substantial way to get low risk returns now?
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