Ask the grumpies: Where to put the extra money

First Gen American asks:

Once you’ve hit all your major savings milestones (paying off the house, no debt, etc), where do you put money then and why?

Disclaimer:  We are not financial planners.  Please consult with a fee-only certified financial planner and/or do your own research before making important money decisions.

We’re still working on the answer to this question.

Obviously you will want to max out your retirement savings in any way that you can.  That means maxing out what you can save at work, putting money into backdoor Roth IRAs, HSAs, self-employment plans if you’re eligible etc.  Retirement vehicles are great because you’re saving tax money either now or later on them.  Also, if you’re eligible for college financial aid, schools won’t look at what is hidden in retirement accounts like they do with regular accounts.

You may want to either beef up or cut down on your emergency fund depending on how you feel about drawing from taxable stocks during an emergency.

Speaking of college saving, 529 plans are a good place to put money if you have kids who are likely to need post-secondary training.  How much to put in is less certain, though right now I’ve been thinking if either of our kids have kids maybe a 529 plan isn’t such a bad thing to pass down to the next generation if we have extra money leftover.  It seems like a tax loophole…

After that there’s spending and saving in taxable funds.  Some people buy real estate.  Some people buy municipal bonds (since these aren’t taxed).  Some people speculate in risky markets for fun.  Some people set up donor advised funds or just give extra to charity directly.

Here are some posts where we’ve covered similar topics.

Next stage financial advice.

Asset allocation. More on diversification.

Spending money can increase or decrease future expenses.  Invest in appreciating assets.

Where should a teenager put extra money

Spending suggestions.  More spending suggestions.  Personal assistants and catering.  Giving money to kids.

Windfalls.  More windfalls.

Saving for long-term priorities.

Grumpy Nation:  Where does extra money go once you’re debt free?

8 Responses to “Ask the grumpies: Where to put the extra money”

  1. delagar Says:

    My parents put their extra $$ in a 529 for their grandchildren, which really saved our lives when it came time for the kid to go to college. 10/10 highly recommend.

  2. Alice Says:

    We still have a mortgage, but are otherwise debt free. We could get rid of the mortgage, but are choosing not to.

    What we do is pretty uncomplicated: we max out allowable retirement savings, we do non-retirement index funds at Vanguard, and we have a cash emergency fund. We keep more in cash than is recommended, but my income can be very up-and-down and I’ve long felt that I needed to have about 2 years of day-to-day life plus an extra “what if health expenses?” cushion. The emergency fund is bigger so that if there’s some disaster, I don’t have money stress on top of the disaster stress. I feel that 2 years is enough time for the disaster to either resolve on its own or for me to come up with a way to live under the new situation, whatever it turns out to be. (And I’m saying “I/me” a lot because this approach predates my marriage, and my husband has been content to let me run the money stuff. He is part of it, of course, but doesn’t have a lot of involvement right now. That would change if he wanted it to or if it needed to.)

    I feel really fortunate to be in the position I’m in. I know that I put a lot of thought and work into what I’ve done and am still doing… but there’s a real element of luck, too.

    • First Gen American Says:

      We have a larger than recommended emergency fund as well. It took many many years to save up to current levels. Our reasoning: We live in an area that doesn’t have a lot of jobs in our field but absolutely don’t want to be forced to move until kids are out of HS. These lifestyle choices sometimes require doing things differently than the cookie cutter rules of thumb.

      Right now our extra is going to mega backdoor roth but this is the last year I’ll probably be able to do that given we are losing an income soon and one kid is starting college.

  3. Debbie M Says:

    Retirement funds. And just having the cash flow to be able to do things right, like stay out of debt, invest in things around the house like window film, and buy higher quality but more expensive things that won’t have to be replaced so much and/or are cheaper to maintain and/or are supporting less icky companies.

    And donating, such as to traditional charities, family member needs, and political causes.

    • nicoleandmaggie Says:

      Excellent ideas– we do a lot of that too. I don’t think I appreciated how much of a difference it makes both in terms of it being nice to have quality things and it being nice to not support evil/to support good without it actually being a big sacrifice.

  4. Revanche @ A Gai Shan Life Says:

    This is purely academic since we still have a substantial mortgage but I’ve been putting our “extra” (not really, it’s just what we don’t need to spend) in our brokerage. We also keep a lot of cash but less than we did pre-pandemic.

    Mostly our situation is similar to Alice. I make all the decisions, always have. I loop in PiC to what I’m doing but he’s not interested in getting into the weeds with me. We’re making the best decisions we can with the information and knowledge we have but I suspect there’s also a whole lot of luck behind the fact that the numbers generally continue to go up.

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