A Good Place to Be

Angie and her husband just paid off their home. Now they're looking at what their next steps should be. They do have $300,000 in savings and earn $3 million a year. Dave helps Angie formulate a plan.

QUESTION: Angie in Nashville and her husband just paid off their home. Now they’re looking at what their next steps should be. They have kids who are 7 and 9, and they have no college savings for them. They do have $300,000 in savings and earn $3 million a year. Dave helps Angie formulate a plan.

ANSWER: Above that, what I would do with an endorsed local provider or whoever does your mutual fund investing is have them do some calculations and figure out, first, where to put the kids in school so you have a target to save for, then start doing monthly savings to hit that.

If I were in your shoes, any extra money I can squeeze out of the budget, I would accelerate the college fund because Sharon and I really enjoyed when college saving was done. When we had it over and the kids were not yet ready to go to college but we could check it off, we liked that.

After college and paying off the house are done, then you max out every retirement option available to you. With your income, I guess we’ll lump-sum the college savings then. Also with your income, when I am working with high-income earners such as athletes or artists, we ask them to set their household budget up on a generous budget but not a ridiculous one.

For the fun of it here, I’ll say $300,000 as a baseline. You buy your travel and your clothing and eating out and all that on that money in our example. Then I suggest you take any money you make above that, and this is what Sharon and I do, we set aside a tenth for our tithe, and we set aside a percentage to every dollar above our baseline.

So, for example, every dollar above our baseline means we give 10% of it to our local church. Then you set aside 40% for taxes. That’s half the money. Then you divide the remaining half among three things: additional giving, investing and some additional lifestyle. You can set those percentages at whatever you want; it’s your money.

An example of that would be when I was meeting with an athlete a while back. We were looking at this and he said, in addition to his tithe, I’m going to give an additional 10% to charity of everything I make over my baseline. So that was 10% of that 50%.

Then I’m going to raise my lifestyle a little bit because as I do better, I want to enjoy it. I’m going to put 5% down for lifestyle. And I’m going to invest 35%. With that investing, don’t try to get über-sophisticated and über-complicated. You’ll get yourself into a mess. Keep it simple and with stuff you understand.

You already own one income-generating property. I might throw some of that into an account until it was big enough to buy another property and pay cash for it, then another property and another. That’s what Sharon and I do. We buy a lot of real estate, and we throw a lot of money in mutual funds. I look for low-turnover mutual funds in this case because I don’t want to pay taxes on the gains, and if they don’t sell the stocks inside the mutual funds, then I don’t have any taxes until I sell out of the mutual funds.

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