Allocating Cash Surplus

Summary

Jill on Money with Jill Schlesinger: Detailed Summary of "Allocating Cash Surplus"

Episode Information:

• Title: Allocating Cash Surplus
• Host/Author: Audacy (Jill Schlesinger, CFP®)
• Release Date: March 24, 2025

Overview: In this episode of "Jill on Money with Jill Schlesinger," host Jill Schlesinger and her executive producer, Mark, delve into the intricate process of allocating a monthly cash surplus through a real-life listener scenario. The discussion centers around effective financial planning for retirement and education funding, providing actionable insights for listeners aiming to optimize their financial strategies.

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Listener Introduction: Juliet's Financial Situation [03:38 - 09:10]

The episode features Juliet from Ohio, who seeks guidance on whether she and her husband are on track for retirement and how to best allocate their monthly cash surplus. Here's a snapshot of Juliet's financial landscape:

• Ages: Juliet is 44, and her husband is 45.
• Income:
  • Juliet earns a base salary of $112,000 with a guaranteed bonus of $10,000, plus $40,000 annually from royalties as an artist.
  • Her husband earns $68,000 per year.
• Assets:
  • Retirement Accounts:
    • Traditional IRA: $500,000
    • Roth IRA: $110,000
    • Roth 401(k): $12,000
  • Home: Fully paid, valued at approximately $700,000-$750,000.
  • Emergency Fund: $40,000, with a desire to increase this reserve.
  • Education Savings: $16,000 in 529 plans per child, currently contributing $350 per month for each of their two children.
• Insurance and Estate Planning:
  • Life insurance policies totaling approximately $1.5 million.
  • Comprehensive estate planning, including wills, power of attorney, and healthcare proxies.

Notable Quote:

"We have started but haven't made a ton of progress. Each kid has about $16,000."
– Juliet [06:48]

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Assessing Retirement Readiness [04:00 - 11:28]

Mark and Jill begin by evaluating Juliet's retirement readiness. Juliet's husband is entitled to a pension of $4,800 per month upon retiring at age 57, which includes healthcare and full survivor benefits. Juliet herself is considering retiring from her full-time job to focus on her royalties.

Key Points:

• Retirement Income:
  • Pension: $4,800/month
  • Potential part-time income from husband: Estimated $1,500/month
  • Juliet's royalties: Approximately $3,000/month
• Retirement Goals:
  • Juliet aims to retire from her 9-to-5 job at 57.
  • Both partners are interested in maintaining some level of income post-retirement.

Notable Quote:

"I would like to put like as much in as you guys think is kind of the right amount to get there."
– Juliet [12:39]

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Strategic Allocation of Cash Surplus [11:28 - 17:56]

The core of the discussion revolves around how Juliet should allocate her $3,000 monthly surplus. Mark emphasizes the importance of balancing immediate financial security with long-term goals, particularly education funding for their children.

Mark's Recommendations:

1. Emergency Fund Enhancement:

   • Target: Increase from $40,000 to a higher reserve (suggested $70,000).
   • Strategy: Allocate a portion of the surplus to bolster this fund, ensuring greater financial security.

2. 529 College Savings Plans:

   • Current Contribution: $350/month per child ($700 total).
   • Suggestion: Increase contributions to accelerate growth and meet future education expenses.

3. Royalty Income Allocation:

   • Strategy: Upon receiving royalty checks quarterly (~$10,000 each), consider allocating $7,000 to 529 plans and $3,000 to the emergency fund.

Notable Quotes:

"If you want to be a little bit more conservative, you'd build the emergency cash up first and then redirect and put more money into those 529 accounts."
– Mark [15:15]

"Every time you get a royalty check, that royalty check goes into the kids funds. And I think that would get you a lot closer to where you want to be."
– Mark [15:15]

Decision Points:

• Juliet and Mark agree that prioritizing education savings is essential, given the family's values around avoiding student loans.
• They discuss balancing immediate needs (emergency funds) with future goals (children's education), leveraging Juliet's stable pension to afford this dual strategy.

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Final Recommendations and Conclusion [17:56 - 19:01]

Mark concludes by affirming that Juliet and her husband are on a solid financial path. He underscores the importance of leveraging existing retirement income to support other financial goals and the benefits of their diversified approach.

Key Takeaways:

• Balanced Financial Planning: Utilizing pension income allows for simultaneous growth in emergency reserves and education funds without compromising retirement security.
• Future Flexibility: As circumstances evolve (e.g., potential increases in part-time income), adjustments can be made to further optimize savings and investments.
• Proactive Management: Regularly reviewing and adjusting contributions based on financial inflows ensures that both immediate and long-term goals are met effectively.

Notable Quote:

"You've done the things that you need to do. You're a working artist and a creator. So, you know, I'm amazed by that. And it's a really great thing."
– Mark [15:29]

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Episode Highlights:

• Comprehensive Listener Analysis: The episode provides a step-by-step breakdown of Juliet's financial situation, offering listeners a relatable example of managing surplus funds.

• Expert Advice: Mark delivers clear, actionable recommendations tailored to Juliet's unique circumstances, emphasizing the balance between saving for education and securing an emergency fund.

• Empathetic Approach: Both Jill and Mark maintain a supportive tone, ensuring that listeners feel understood and guided through complex financial decisions.

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Conclusion: "Allocating Cash Surplus" offers listeners a valuable blueprint for managing extra income effectively. By prioritizing both emergency savings and education funding, while leveraging existing retirement benefits, audiences can glean strategies to enhance their financial well-being. Whether you're evaluating retirement readiness or seeking the best way to invest your surplus funds, this episode provides insightful guidance to help you make informed, confident financial decisions.

Notable Quotes Recap:

• "We have started but haven't made a ton of progress. Each kid has about $16,000." – Juliet [06:48]
• "If you want to be a little bit more conservative, you'd build the emergency cash up first and then redirect and put more money into those 529 accounts." – Mark [15:15]
• "You've done the things that you need to do. You're a working artist and a creator. So, you know, I'm amazed by that. And it's a really great thing." – Mark [15:29]

---

For more personalized financial advice and to explore further topics, visit jillonmoney.com and engage with Jill Schlesinger's weekly content tailored to empower your financial journey.

Transcript

[Jill Schlesinger]

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[Mark]

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[Mark]

Welcome to the Jill on Money Show. It's Monday, March 24th and we are here trying to help you make better or more considered financial decisions. Maybe we're here to clarify what your goals and objectives could be or. Or as Mark likes to say, Mark the best Executive producer in the world. Sometimes we are dream makers and sometimes we are dream crushers. Don't be scared. We'll do it all with a with a hug, with warmth, with empathy. One of the things I love about this show though is that when I get to talk to you, I can really Hear sometimes, like in between the words, some of the emotions that are bubbling beneath. And I know that a lot of you have been carrying a lot of emotional baggage lately. It's been a tough beginning of the year. So if you feel like you need some assistance, a little mentoring, a little coaching, why don't you give us a holler?

[Jill Schlesinger]

Go to our website.

[Mark]

It's jillonmoney.com in the upper right hand corner, there is a contact us button. Click that button, write us a note. And if you would like to join us on the air live, check the box. Mark will do everything else While you're on the website. You'll see all of our content lives there. I've got a lot of blog posts, videos, resources, and we have the free weekly newsletter which comes out every single Friday. Okay, so let us turn to you. We have a listener. Her name is Juliet, and she joins us from Ohio. Hi, Juliet. How are you?

[Juliet]

Hi, Jill and Mark. I am good. I'm really happy to be here.

[Mark]

Exciting, right? What's on your mind? How can we help you out?

[Juliet]

Well, I am wondering if we are on track for retirement. And then in addition to that, we have a little bit of surplus in our budget each month, and I'm trying to figure out the best place to put that money.

[Mark]

I like the where to put extra money. It's one of my favorite questions. I usually will tell you to spend it, but let's see, maybe, maybe not.

Send it to Brooklyn.

Yeah, exactly. Mark is ready to plant his garden, and that was very expensive. He spends a lot of money on his plants. Okay, Juliet, first of all, you said a we, so is there a spouse?

[Juliet]

Yes, I have a partner.

[Mark]

Okay.

[Juliet]

Sorry. We're married.

[Mark]

Okay, so you are married. Okay, so that's only. I just do that for the legal status. How old are you, Juliet?

[Juliet]

44.

[Mark]

And how old is the married partner?

[Juliet]

My husband is 45.

[Mark]

Okay, very good. So are you both working full time?

[Juliet]

Yes, we are.

[Mark]

How much do you guys earn?

[Juliet]

Together, I earn a base of 112 with a $10,000 bonus.

[Mark]

Is that like a guarantee bonus or is that the kind.

[Juliet]

Okay, that's the lowest I'll get. I could get more, but that's like the lowest.

[Mark]

Okay.

[Juliet]

And hubby, he makes 68,000 a year.

[Mark]

Okay.

[Juliet]

And then I do have another 40,000 a year I make right now in royalties.

[Mark]

Royalties. Are you a writer?

[Juliet]

No, I'm an artist.

[Mark]

Oh. Also very exciting. I love it. A creative person who's making money is amazing, shocking, and fabulous. Okay. Do you have Kids?

[Juliet]

Yes, we have two kids.

[Mark]

How old?

[Juliet]

12 and 10.

[Mark]

Couple of questions now. So are either of you entitled to a pension in the future?

[Juliet]

Yes, my husband is.

[Mark]

Okay, great. Can you just tell us what that pension kind of looks like if he were to stick around for as long as he has to stick around to get a pension?

[Juliet]

Yes. So he will retire at 57. He has a very physical job, and it is a full retirement, and it's 4800amonth plus healthcare.

[Mark]

Oh, I like the healthcare. Wow, that's amazing. Okay, you don't have that?

[Juliet]

No. So in traditional ira, which I've rolled over from past jobs, I currently have 500,000.

[Mark]

All right, go, go, go. Juliet. Okay, what else?

[Juliet]

And then I also have a Roth IRA with 110.

[Mark]

Okay, great.

[Juliet]

And I have a new ish job with a Roth 401k, and I've only been there a year, So I have 12,000 currently.

[Mark]

That's great. That's a lot of money. Not, you know, based on the fact that you guys don't make a ton of money, but you make good money. How about money put away for the kids? Any 529 plans or money that's earmarked for education for them?

[Juliet]

We have started but haven't made a ton of progress. Each kid has about 16,000.

[Mark]

So, Juliet, do you guys own a home?

[Juliet]

Yes, we do.

[Mark]

How much would you guess that it's worth?

[Juliet]

Probably around 700, 750.

[Mark]

That's nice. And is there still a mortgage that's outstanding on it?

[Juliet]

No, there isn't.

[Mark]

What?

[Juliet]

Okay, in fairness, our mortgage was 160, so it, you know, okay, whatever.

[Mark]

It's gone. And you're staying there. This is the house you love we are seeing here. So this might explain why the cash flow is so good, right?

[Juliet]

Yeah.

[Mark]

What other assets do you have? Is there a rental property or a brokerage account? Anything else that we haven't accounted for?

[Juliet]

Nope.

[Mark]

That's good. That's great.

[Juliet]

Just like, you know, emergency fund and, you know, checking and savings.

[Mark]

All right. What's in the emergency slash cash accounts?

[Juliet]

About 40,000. We'd like a little more, but okay.

[Mark]

You said that you have extra money every month. Where is that coming from? Is that, like, when the royalties come in? Like, how does your cash flow from month to month without the royalties?

[Juliet]

It's fine. Since the royalties kind of come in these kind of big lumps. It does feel like all of a sudden we get, you know, this amount of money that then we kind of have to, like, put somewhere yeah. So yeah, I'd say we have generally about 3,000amonth right now. And we just want to extra and we just want to make sure we are. We put it into the right place.

[Mark]

But you're saying $3,000 a month, which is after you've put money into your Roth and you've put money into your 401k, like after all of that, after your bills are paid, that's the money you have on a monthly basis is $3,000. And does that include. Is that $3,000 a month before the royalties or inclusive of the royalties?

[Juliet]

Inclusive.

[Mark]

Okay, got you. Great. And are you putting money on an ongoing basis into the kids 529 plans?

[Juliet]

Yes.

[Mark]

How much is going in there currently?

[Juliet]

About 350amonth for each.

[Mark]

350Amonth. Okay, so 750. So again, the 3,000 month, you already have accounted for that 700, correct. Okay, I got you. Great. How much you figure you guys spend on a monthly basis?

[Juliet]

It's about nine.

[Mark]

Do you guys have life insurance?

[Juliet]

Yes.

[Mark]

How much?

[Juliet]

That is a good question. I think we had. We have a lot. We had old policies term that are expiring and then my new job offers a really good plan. So I want to say it's like a million and at least a million on me and then like maybe another half million on my husband.

[Mark]

Something like that. Okay, very good. Excellent. Do you guys have wills? Do you have a power of attorney? Do you have a health care proxy?

[Juliet]

Yes, we've done all of.

[Mark]

Look at our girl making it happen. Okay, so if your husband retires at age 57, Juliet, will the he be fully retired in general? Do you think he'll go do something?

[Juliet]

He definitely wants to still do something part time. Like absolutely wants to too.

[Mark]

Okay, and that $4,800 a month for his pension, does that include some benefit to you if he were to pass away?

[Juliet]

Yes, that's the full survivor benefit.

[Mark]

Okay, great. So I guess the question is at 57, he turns 57, he's retired and he makes. Let's try to give him a low bar. He'll do something for what, like $1,000 a month, $2,000 a month? Something like that?

[Juliet]

Yep.

[Mark]

All right, I'll say 1500 just because I can. And then would you keep working?

[Juliet]

That's kind of what I'm wondering. I would not mind retiring from my 9 to 5 job at 57, especially if he's going to be kind of half retired.

[Mark]

Sure.

[Juliet]

I would like to kind of still do my side hustle that earns the royalties.

[Mark]

Okay, so if we said like if that 40,000, then I could say if he's going to make 1500amonth part time and you could make three grand a month part time slash royalties. That kind of gets us pretty close to what we need, right? The 4,500amonth, $4,800 a month plus 3 grand a month if I'm your royalties, plus $1,500 a month that he does something. So does that feel like doable to you if you do that for a few more, you know, bunch of years? Like I don't know, from 57 to 65 so you guys, you know, or 63, like does that seem doable?

[Juliet]

Yeah. In terms of like us doing the part time work? Yes.

[Mark]

Okay, great. So then what we're really talking about is you having pretty much what it sounds like is the money you need for your retirement needs mostly not 100% because you know, we're talking, I know you need net and we're talking about gross numbers right now. So let's say instead of, you know, we'll, we'll have nine or $9,300 a month, but we also have all that money you've put away so in the Roth and the traditional and the Roth 401K. So then I guess the question is how much you really want to start supercharging the kids college education. Because I think that's the, I think the, the when you say are we on track for retirement? Absolutely, that's not the problem. But if you said we really want to try to pay for public school for these two kids for the 10 and 12 year old, then I think you need to be directing more money towards the 529s. Do you agree with that, Mark?

100%. Yeah. I mean the older kid, before you know it, it's going to be a freshman.

That's horrifying. I'm sure to them also. How much of the 3,000 would you like to allocate to that 529 plan? What do you feel comfortable with, Juliet?

[Juliet]

I mean I, we definitely value the idea of funding our kids education. Neither my husband or I had to take out loans for college, our family for it. So we really, really value that. So I, I would like to put like as, as much in as you guys think is kind of the right amount to get there.

[Mark]

Well, how much? You said you'd like to have more money in your emergency or cash reserve fund. What amount of money? I mean if you spend nine grand a month, he's got a job. It doesn't sound like he's going to lose his job. Do you want to have six to 12 months in that emergency reserve fund?

[Juliet]

Yeah, I think we'd like a little more.

[Mark]

Okay.

[Juliet]

Yeah.

[Mark]

So why don't I. I would say this. What would you say IF of the $3,000 or even if you can do that, you don't have to do it monthly because obviously when royalties come in, you can just sort of think of it this way. I would say, does a royalty check come like once a year in one big chunk?

[Juliet]

Four times a year?

[Mark]

Four times a year. So maybe every time it comes in. Right. Ten grand every quarter. Right. I would say I would take 7,000 and I would probably put that into the 529 and I'd put the other money into the emergency cash. And if you want to, like, get the emergency cash built up a little faster, then you can just take the first couple of paychecks, get the emergency reserve fund where you want it to be. I don't know what that number is for you because it sounds like you have a number in. What's your number that you have in mind?

[Juliet]

I mean, maybe more like 70.

[Mark]

Okay. So for the next three checks, put in the emergency reserve fund. Make sure you're getting paid on this cash. Okay. And just get that done. And as soon as you get the emergency cash where you want it to go, then I would be putting in. You know, every time I got a check from the royalties, I would just split it between the 529 accounts, I really would, and just put five and five. And you know, hopefully you can get the chunks of money in there. And that to me is the way you supercharge your 529 plans. You just make sure that you're putting as much as you can right now. Because you only have, as Mark said, you know, I mean, you can have the money in there, but like, there's no reason not to really try to jam more money in there. But I think if you want to be a little bit more conservative, you'd build the emergency cash up first and then redirect and put more money into those 529 accounts. Every time you get a royalty check, that the royalty check goes into the kids funds. And I think that would get you a lot closer to where you want to be. Do you agree with that, Mark?

I do. And if she wants to think, you know, if it's easier for her to think about it on a monthly basis with $3,000 a month. You know, I would probably just put 1,000 into your emergency emergency reserve and get that where you want it to be. And then I would put the extra $2,000 into the 529 accounts.

Yeah, it really just depends, Juliet, on where, you know, if you feel a little bit anxious about the emergency reserve being low, then address that first and then get on it with the. When you have the kids accounts, you know, when you have the cash flow for the kids accounts. But otherwise you're in very good shape. You've done the things that you need to do. You're a working artist and a creator. So, you know, I'm amazed by that. And it's really. It's a great thing. And, you know, maybe it's all even better than we think because, you know, you're very young. And so if your husband decides, at 57, you know, I'm calling it quits, he might be like, I could make more than $1,500 a month. We're really low balling the other aspects of this. And if you get the 529 accounts built up and things are going really well, then you can always open a brokerage account as well for yourselves, that money that you can access. So I think you're in great shape, and I think that, you know, the original question, what do we do with our extra money? Build up that emergency reserve fund, build up those 529 accounts, and you guys are golden. Really golden. It seems like you're really on track to do the things you want to do, and that's kind of a great thing. What a place to be.

[Juliet]

Great. So, I mean, I guess you kind of answer this. So I don't need to increase my contributions 401k.

[Mark]

Not right now. Because we want to build up the 529 accounts. And so listen, let's just. Let's let's push the clock ahead five years. The 529 counts are nice and big, but, like, your 10 year old is somehow becoming like a. An incredibly valuable oboist who plays soccer and spins plates on the side, you know, like, whatever. She's like this. Or he's this amazing kid, and you're not gonna have to pay for any college. Okay. Then you're in a different situation, right? Then you're like, oh, I can stop putting money in my 529 accounts. And what I can do is I can actually just jam in on the Roth contributions. But for right now, if education is a priority, you got to put the money there.

[Juliet]

Okay? That makes sense.

[Mark]

And if you didn't have the pension, I would caution you about that. So the pension is what gives you the ability to have the cash flow. Go to education. Because if you didn't have the pension, we'd be telling you to max out your Roth. We'd be telling you to really push as much money into those retirement accounts. But because of that pension, you can do more than one thing at once. So this is amazing.

[Juliet]

Great.

[Mark]

I know you're feeling good. Aren't you glad? You should. You should have called me two weeks ago. You would have felt even better. So that's good. All right. If you have a question about maybe some competing goals and priorities that you have in your financial life, get in touch with us. Go to jill on money.com click the contact us button. Write us a note if you'd like to join us on the air. All you need to do is check the box and Magic Mark does everything else. He's the best. Don't forget to sign up for the free weekly newsletter and also subscribe to us on the Odyssey app, where you can also subscribe to our sister broadcast called Money Watch, which comes out on Saturdays and Sundays. So if you were really pining for that extra two days of us and then we pulled the rug out from under you at the end of last year and you want more Jill and Mark, subscribe to Money Watch. Both of our podcasts are available on the Odyssey app or wherever you find your favorite podcast. Don't forget to lift sum it up. Change your work, change your wealth, change your life. Thank you for listening and we'll talk to you tomorrow.

[Jill Schlesinger]

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