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Hi folks, After putting a 20% down payment on a house and some extra to help furnish, my wife and I have about $45k left in inheritance, doing very little for us in a savings account. I've read that it can make sense to pay down high interest debt, but my wife's student loan is about $12k, 4.8% (is that considered "high"?), $100 month payment (about half to P and half to I), with an estimated payoff date of June 2029. I am having trouble figuring out the math on if it makes more sense to: A) Pay this off completely, B) Wrap up our emergency fund (6 months bare-bones expenses goal of ~$32k, and we currently have $7,700 saved up, and are putting $1,000 - $1,500 in per month), C) Begin investing in something long-term for our retirement in Betterment. We are 29 and 30, D) An optimal combination of all 3, E) Do something else! If the answer is build the emergency fund, I am also looking for recommendations for the ~$1,000 I would normally use to build the fund, in terms of options A) and C) above. Assumption: I have other monthly expenses covered. Our combined take-home income is about $3,300/two weeks, or $6,600 most months. Expenses are $6,500 - $7,000 including emergency fund payment of $1,000+ and mortgage/escrow of $1,700. We're going to see a for-fee advisor to talk about this soon, but I wouldn't mind saving the $150 to get some good ideas here! Thanks for everyone's help!
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Apr 12, 2015 09:10
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| # ? May 3, 2024 11:53 |
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Step 1) Pay off your wife’s student loan, assuming you reasonably anticipate staying together. Assuming you are in the US, your investments will have to yield considerably over 4.8% to have the same returns as paying off the debt due to capital taxes. Since the 4.8% “return” is guaranteed, should go for that instead, especially since student loan is non-dischargeable. Step 2) Fully fund up your 6 months emergency fund. I assume you have no other debt, except mortgage. Step 3) Fully contribute to all your retirement accounts, including HSA. Especially if you have an employer match. Step 4) Invest in a low-cost index ETF, preferably global. But if you are narrow minded, you can stay with the US via the S&P 500 index. Step 5) Don’t be lazy and rely only on SA or your for-fee advisor. Borrow some textbooks from the local library on personal finance and read it. Gonna put some elbow grease into it. 
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Apr 12, 2015 09:21
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If you haven't contributed to an IRA in 2014, do it NOW NOW NOW. You only have until April 15 to fund an IRA for 2014. You can put $5500 into an account for each of you for 2014 and 2015 (assuming you're both under 50). That's $22,000 of your money going to your retirement. With the loan payoff that leaves about $11k for your emergency fund.
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Apr 12, 2015 13:14
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Zero One posted:If you haven't contributed to an IRA in 2014, do it NOW NOW NOW. You only have until April 15 to fund an IRA for 2014. I like this plan
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Apr 12, 2015 14:18
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Do the two contributions, pay off the student loans, and save the rest. Also, 5500-6000 a month in expenses sounds unbelievably high for someone with only a 1700 a month mortgage payment.
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Apr 12, 2015 15:46
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Harry posted:Also, 5500-6000 a month in expenses sounds unbelievably high for someone with only a 1700 a month mortgage payment. It sounds like $1,000 of that is "emergency savings", but even then yeah it seems very high vvvvv oops, thanks 
pig slut lisa fucked around with this message at 17:33 on Apr 12, 2015 |
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Apr 12, 2015 15:50
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pig slut lisa posted:It sounds like $1,000 of that is "emergency savings", but even then yeah it seems very high That's with the savings factored in.
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Apr 12, 2015 15:55
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I hadn't thought of the IRA option, that seems really helpful. Thank you! Yes, the expenses include $1,000 in monthly savings towards emergency fund. These expenses are for my wife, dog and I, we are working on what we can cut down. Here's a high-level breakdown (this is NOT the bare bones, this is standard) if this helps...I wouldn't mind advise on this as well. Again, bi-weekly income is $3,300, so two months have three of these additional payments. We also get some side income for singing at weddings, etc. Mortgage P&I/Escrow: $1.8K (includes extra $100 payment) Water/Trash/Electrical: $383 Cable/Internet/Cell: $296 Car Insurance: $82 Exterminator $31 Singing Organizations we Are Both In: $57 Netflix $9 Charity: $100 Groceries: $300 Fuel: $320 Tolls: $200 Individual Spending Money: $1,000 EDIT: this is if we want to eat out, or buy fun stuff for ourselves Dog Food: $60 Dog Daycare: $100 Accruing for Annual HOA: $25 Accruing for Annual Ring Insurance: $38 Accruing for Annual Home Warranty: $58 Accruing for Annual Vehicles' Registration: $15 E-Fund: $1,000 YNAB Buffer: Whatever is leftover, usually about $500; this should be wrapped up within two months Student Loan: $100 Also some extra in there for vacation/home repair, car replacement, $50 here and there that I can steal from. Cash and Prizes fucked around with this message at 18:11 on Apr 12, 2015 |
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Apr 12, 2015 18:06
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Cable/Internet/Cell seems high. Does your work reimburse you for any cell phone fees? I have a retention plan with Verizon: $60 for unl call/text and 2 GB data monthly. So, that's cheap even with staying on an expensive national provider. If you have cable because you need sports, well, I feel your pain. It loving sucks. With the $1000 spending money, I used to have a big bucket for that too. I recently started breaking it down into more granular categories and it's helped me save a lot more money because it exposed me to what I was really spending it on-- more eating out, a bunch of technical hiking gear I didn't need. So, I took most of it and either repurposed it into the categories it was already going into or put it into additional savings. I also have a specific line item for dates too.
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Apr 12, 2015 18:59
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Blinkman987 posted:Cable/Internet/Cell seems high. Does your work reimburse you for any cell phone fees? I have a retention plan with Verizon: $60 for unl call/text and 2 GB data monthly. So, that's cheap even with staying on an expensive national provider. If you have cable because you need sports, well, I feel your pain. It loving sucks. Further broken down: cable/internet bundle (Uverse, kind of in a monopoly for that short of cutting the cord): $111. Verizon cell is $180 which seems ridiculous but I'm not sure how to cut this. This includes $80 for talk/text/data for two of us, about another $40/line for Android and iPhone smartphones or something silly like that, and the remainder for insurance. Cell is not reimbursable. I'm with you on the $1,000, I'm starting to think that's where we're really getting killed as I'm not terribly sure where else to cut (we'd love to keep cable/internet, of course). I think this is where the big work needs to happen but I wanted to see if I was crazy elsewhere.
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Apr 12, 2015 19:05
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Get Republic Wireless or something, you'll have unlimited everything on two phones for $60 *after* taxes and fees. If you have a landline ditch it. I"m sure that right there would save you $100 a month. I pay about $115 a month for a fancy cable package plus higher-speed internet, and then $30 a month for my cell phone through Republic Wireless. And I don't think Comcast internet/TV is really any cheaper here in Chicago than it is anywhere else. Also "bare bones" expenses shouldn't include $1000 in fun money, nor $1000 in savings (if you're having a situation, you're not putting money into savings, you're just trying to take as little from it as possible!). Probably also don't need to factor doggy daycare or charity into barebones expenses either; if you can't go to work or get fired, you won't need doggy daycare, and if you have hard times you can stop giving $100 a month to charity until you're through whatever's going on. Adding everything up, it looks like your actual barebones amount per month is like $3300 or so. $20k should give you a nice six month cushion. $32 is more like almost a year of barebones living - and with still having netflix, cable, singing, $500 in car use expenses etc. included, it's not exactly pauper living. Nail Rat fucked around with this message at 19:11 on Apr 12, 2015 |
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Apr 12, 2015 19:08
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Nail Rat posted:Get Republic Wireless or something, you'll have unlimited everything on two phones for $60 *after* taxes and fees. If you have a landline ditch it. I"m sure that right there would save you $100 a month. We are close. I would keep the cable and Internet as it is a bundle, and the Internet would help us in a dual job search. Same with phone. I agree about the $1,000 being cut, but then I'd add in about that amount for COBRA or some such, wouldn't I? Daycare would be cut, fuels and tolls would come down as well, true. Actually, I wouldn't mind seeing what you included in your $3,300 calculation. 1EDIT: just re-read your edit which clarifies some of this. Thanks. EDIT2: Actually, still wouldn't mind seeing how you arrived at that number. Cash and Prizes fucked around with this message at 19:15 on Apr 12, 2015 |
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Apr 12, 2015 19:12
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Is there a quick and dirty guide to what kind of IRA and broker I should choose at such a last minute?
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Apr 12, 2015 20:26
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Cash and Prizes posted:Is there a quick and dirty guide to what kind of IRA and broker I should choose at such a last minute? The super quick guide. Which provider? Vanguard. What type? Fire up your Tax software and see if you get a deduction for a traditional IRA. If you don't, go with a Roth. Zool fucked around with this message at 21:01 on Apr 12, 2015 |
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Apr 12, 2015 20:48
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Cash and Prizes posted:Is there a quick and dirty guide to what kind of IRA and broker I should choose at such a last minute? At your income: If you have a 401k, roth. If you don't, traditional.
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Apr 12, 2015 20:53
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Thank you!!
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Apr 12, 2015 20:57
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Mortgage P&I/Escrow: $1.7K Water/Trash/Electrical: $383 Cable/Internet/Cell: $200 Car Insurance: $82 Singing Organizations we Are Both In: $57 Netflix $9 Groceries: $300 Fuel: $320 Tolls: $200 Dog Food: $60 Accruing for Annual HOA: $25 Accruing for Annual Ring Insurance: $38 Accruing for Annual Home Warranty: $58 Accruing for Annual Vehicles' Registration: $15 Total is actually 3447. 6 month total: $20.6k. Things cut out from your listed budget: -$100 on phones, you should be able to get phone/internet/cable down to $200 total...especially since you have netflix. You don't have to do this now, but in an emergency you could. -$100 charity. You can give when it's not an emergency. -$1000 fun money. Watch netflix or sing or play with your dog if it's an emergency. Or drive, because holy gently caress you drive a lot. -$1000 savings. If it's an emergency, you don't necessarily need to keep saving, just try not to bleed the emergency fund so fast. -$100 extra mortgage payment. If it's an emergency, this is not barebones necessity. -$100 doggy day care. In 9/10 emergency situations one of you will be home. -$31 exterminator. Just be extra careful not to drop food or something. -$100 student loan. Just pay it off! Since you only need 14k to get the emergency fund to the above level, this is what I would do though I'm no expert: -Bump the emergency fund up to 18k (11k) -Pay off the student loan (12k) -Max out two Vanguard Roth IRAs for 2014 and 2015 (22k). Just put it in target retirement funds. Then, you can easily finish out funding your emergency savings to 21k within 3 months. Then, you can keep saving money until tax day next year when you can max out two Roth IRAs for 2016 again. Right now all you can do is max Roths, it's probably not worth it to start a taxable account until you either reign in some of that $1000 fun money or get some pay increases. If you save $1000 a month and you can put $11k a year total into Roths, that's pretty much perfect. Nail Rat fucked around with this message at 21:54 on Apr 12, 2015 |
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Apr 12, 2015 21:43
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Nail Rat posted:Mortgage P&I/Escrow: $1.7K Thank you for your advice (and everyone else's on here)! Especially about the IRA, which we were able to contribute in time for 2014. We went with this scenario and feel really great about it. Just wanted to come back and update. Thank you!
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Apr 24, 2015 00:51
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Cash and Prizes posted:Thank you for your advice (and everyone else's on here)! Especially about the IRA, which we were able to contribute in time for 2014. We went with this scenario and feel really great about it. I just found this thread and I wanted you to know that I was on the edge of my seat hoping you were able to contribute for 2014 before the deadline. Huge relief when you updated. I'm a nerd.
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May 6, 2015 08:37
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I would pay off your wifes student loan and invest the rest. Money that is not invested is money that is sleeping. It doesn't gain interest to match inflation so it's money lost. Invest a large amount in a safe long term mutual fund and consider investing a smaller amount in a moderate to aggresive one. The markets right now in the US at least are going to be going up for a good 2-3 years.
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May 9, 2015 19:42
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| # ? May 3, 2024 11:53 |
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PerpetualSelf posted:The markets right now in the US at least are going to be going up for a good 2-3 years. Famous last words Anyway im in the same situation as the op minus the bills, debt, and interest in retirement funds. Wish me luck
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Jun 9, 2015 10:32
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