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I am very fortunate to have recently inherited about $114k in cash and $142k in private stock in a regional bank and I could use some advice on what to do with it...especially the stock. I've been bad with money for a long time and have recently started changing that (with a lot of help from people here -- thank you). This is a lot of words; hopefully it gives you all the information you need. Me & My Money I'm in the US, 37-years old, unmarried, and have no kids and no emergency fund. I essentially live comfortably from paycheck-to--paycheck and usually manage to cut spending when I have to, but I don't prepare for big emergencies. Once I've figured out this inheritance situation, I'm going to set up automatic contributions to my Roth IRA and possibly other investment accounts. I had that set up in the past, but it turns out my current Roth IRA account is terrible. salary: $74k/year, take home $4200/month checking/savings: $1000 401K: $32k, contribute enough to max employer matching 401A: $5600, from an old job, allocated to Vanguard Target Retirement 2045 Roth IRA: $7300, variable annuity (oops), waiting until I can move this with no surrender penalty credit card 1: $1350 at 0% for the next 13 months with automatic payments of $100/month cc 2: $1100 at 14.99% cc 3: $540 in grace period cc 4: $1240 in grace period mortgage: $99.5k left at 6.5%, most recent monthly payment was $540 interest, $157 principal, $41 PMI I tried to use a cash back credit card (cc2) and pay it off every month. I did well for a year or so, but then hosed it up last month and now I'm trying it with a different card (cc4). What I know I need to do I know I'm using some of the cash to:
Should I pay off my 6.5% interest mortgage? I bought my house in 2008 even though I couldn't really afford it (if only I'd understood that then) and I'm trying to sell it now. My house has been on the market for five months and I've been told that houses in my price range aren't selling well here. Sales slow down even more during winter. Based on a couple offers that have been made, but not worked out due to the buyer's situations, it will probably sell for around $108k. Should I use the cash to pay off most of my mortgage? That would get rid of PMI and reduce the amount of interest I pay by a lot. If it's not a good idea to pay off the mortgage OR once I've gotten it back from eventually selling my house, what's the best way to invest it? WTF do I do with private bank stock? My other main question regards the private bank stock. I own 1185 shares. It seems like the stock has done well, but I only have data since 2002. The bank has been around since the 1890s and has twenty-something branches, all in this state, and is expanding. I have other data on deposits, loans, reserves, etc., but I don't really know what's most important to look at. In addition to the ESOP and book values, there's also the general offering value which is currently $134/share. If I sell stock back to the bank, I get 90% of the general offering value (currently $121/share). I don't have historical data on general offering value, but might be able to get it. The bank pays semi-annual dividends that I've chosen to receive. I could also choose to have them reinvested in shares at the ESOP price.  The June/December/Total Dividend columns are for 1185 shares.  I know very little about stocks in general and even less about private stocks. I'd appreciate any advice on how to handle this. It doesn't feel right to have so much of my retirement savings in a single place, but it does seem like it's stable and growing well. Thank you all so much for any help you can give me and all that I've already learned from reading other threads here. I really appreciate it and will think of you fondly when I'm hopefully able to retire some day.
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Sep 20, 2015 21:48
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| # ? May 5, 2024 17:32 |
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Why do you say you can't afford the house? You can afford the house, what you can't afford is all the other poo poo you are throwing your money at. What's eating up so much of your income? If I were in your shoes, I'd refinance down to a lower rate with a lender that pays your closing costs, and use enough of the inheritance to get rid of PMI. Don't know anything about private bank stock, sorry.
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Sep 21, 2015 00:47
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moana posted:Why do you say you can't afford the house? You can afford the house, what you can't afford is all the other poo poo you are throwing your money at. What's eating up so much of your income? I say I can't afford it because it's an FHA mortgage with 3% down and the 3% was a gift. I mean, I can afford the payments, but I feel like I shouldn't have bought it in the first place because I didn't save for a decent down payment. And owning a house gave me one more excuse to put off moving away which has been detrimental to my career and happiness. I wasn't making nearly as much when I bought it either. For a long time I wasted money on drugs, alcohol, eating out, and pretty much whatever I wanted to buy -- music, electronics, books, other hobby stuff. Recently I've been helping my girlfriend pay off a bunch of old debts of hers and buying some things for her house where I now live -- a lawn mower, trimmer, shelving, etc. And we still eat out too much and sometimes I spend too much on alcohol, but no drugs anymore and I'm over buying things for the most part. I'm also working on an actual budget where savings will be taken out automatically with every paycheck. I'm going to use the envelope system for food, alcohol, discretionary...anything else that isn't a fixed monthly expense. I may end up posting a thread for my budget, but I'm not ready for that yet. I saw your recommendation in another thread for The Willpower Instinct and I'm going to find a copy of that somewhere (probably inter-library loan). Until not quite two years ago, I was stoned & drunk most of the time so I'm still working through a lot of mental health stuff that I should have faced a long time ago. I've considered refinancing, but I didn't think that would be a good idea since I'll hopefully be selling the house within the next year. I just read more about refinancing without closing costs though and I'll work on doing that ASAP. I should have done that years ago...though I didn't think I'd be living around here this long. Assuming I refinance to a lower rate and pay off enough to drop the PMI, should I then up my 401K contribution and use the inheritance to make up some of the difference? In order to reach the max of $18k by the end of the year, I'd have to change my contribution to nearly 100% if that's even possible. And I don't have great options within my 401K. Maybe I'm completely wrong about how all this works and the best approach. Or if I'm trying to do too much too fast; I feel like I have a lot of catching up to do though. Thanks.
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Sep 21, 2015 02:35
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If you aren't living in the house you should sell it, don't refinance if you plan to sell. Stop paying off your GF's poor financial decisions, you got enough of your own it sounds like. You will probably need to 'hide' this money from yourself until you've gotten your spending habits really under control or you will blow it. Eventually you'll want to sell off the bank stock and probably hold mostly an S&P 500 ETF or something else that represents the market as a whole.
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Sep 21, 2015 02:47
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You should be able to acquire more detailed financials from the bank if you call and ask. The dividend yield is pretty low (1.34%), but they apparently managed to weather the 2008 crisis and are increasing dividends at over 3% a year. So they appear to be financially sound. And at least the dividend increase is beating inflation. Option 1 The easiest thing to do would be to take the dividends and put them into your Roth each. That's an extra $1500/yr that you don't have to worry about. Since they are probably qualified dividends, then you'll likely not pay any taxes on it either. This approach will leave you with ~$35k more in your Roth in 10 years and your yearly dividends will be in the neighborhood of $2,000/yr. You'll also have 1185 shares of the bank valued at some amount that can't be predicted. If they keep up that 10% yearly growth, then you'd be looking at $340,000 in stock. Option 2 Contribute the dividend, then sell off enough stock to max out your Roth IRA. For this year, you'd take the $1500 dividend, then sell $4,000 worth of stock to contribute the $5500 limit. You'd only be drawing down ~3% a year, so if that growth rate keeps up, you could continue selling off in perpetuity. There will be minor tax implications with this approach. It's hard to project this approach, but in 10 years, you'd probably have ~$80k more in your Roth. The sell-off contributions would be in the neighborhood of 300 shares over the 10 years (again, hard to project). So you'd be left with 885 shares, using the price above, these shares would be worth $250k. Option 3 Sell every bank share and move the proceeds into an index fund. You'd earn more in dividends and be better diversified. Personally, I'd consider a modified version of option 2. But you'd want to learn some accounting basics so that you can understand how well valued your holdings are. Option 3 is completely hands-off and probably what most people here will suggest to you. oRenj9 fucked around with this message at 02:59 on Sep 21, 2015 |
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Sep 21, 2015 02:54
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n8r posted:If you aren't living in the house you should sell it, don't refinance if you plan to sell. Stop paying off your GF's poor financial decisions, you got enough of your own it sounds like. You will probably need to 'hide' this money from yourself until you've gotten your spending habits really under control or you will blow it. Eventually you'll want to sell off the bank stock and probably hold mostly an S&P 500 ETF or something else that represents the market as a whole. My girlfriend's debts are mostly paid now so that's not an issue anymore. She's making payments she can handle on what's left. I'm certain I'm past wanting to blow the money on ridiculous crap. A few years ago? Maybe not; I didn't really want to live too long anyway. I'm mostly over that now and doing more planning for the future. I might buy a new laptop -- I'm a developer by trade and do a lot of coding outside of work as I'm filling in gaps in my skills and trying to find a different job. Other than that everything's going towards debt, emergency fund, and retirement. I'll probably eventually sell the bank stock. My family seems to favor holding on to at least some of it, but I guess that doesn't make sense unless I manage to do as oRenj9 suggests and learn some accounting to figure out if it's really a good investment. Thanks for the advice. oRenj9 posted:[lots of great advice] I'll definitely put the dividends into my Roth along with automatic payments from my salary to max that out. Would there be an advantage to making a large increase in my 401K contributions or is it not worth it at this point given my lack of decent options and knowledge? I'm guessing I should wait on this sort of thing at least until I'm sticking to a decent budget and have a better understanding of investing. Hopefully I'll also be at a job with much better allocation options within the next year. Thanks for taking the time to help me out.
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Sep 21, 2015 05:30
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Soup in a Bag posted:It's been on the market for five months now. If refinancing won't cost me anything and will lower the interest rate, why shouldn't I do that? From what I read, I won't get the lowest possible interest rate with a no-closing-cost refinance, but it will still be lower than the current rate and I don't know how long it will take to sell the house. Am I missing something else? 'No fee' refinances generally increase the amount of money you owe by tacking on the fees to the total loan value. Do you know if you have some/any tax issues with regard to this inheritance? Is any of this coming out of an IRA or some other tax advantaged account? Is there a reason the house has been on the market that long? Have you considered renting it? I think you could make a good argument for paying off the house so you're not getting hit with the 6% on 100k + PMI fees.
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Sep 21, 2015 23:42
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Soup in a Bag posted:Do you have book or class recommendations on how to learn the accounting skills you suggest I'd need? I've realized how little I know about business and finance over the past few years and I'd like to learn more. http://beginnersinvest.about.com/od/analyzingabalancesheet/a/analyzing-a-balance-sheet.htm I usually don't go to about.com, but Joshua Kennon does a great job explaining these things. He also has a blog where he talks about why he chooses specific investments for his portfolio. He points out what information to look for on financial statements. It's not comprehensive, but it's a starting point. Soup in a Bag posted:Would there be an advantage to making a large increase in my 401K contributions or is it not worth it at this point given my lack of decent options and knowledge? I'm guessing I should wait on this sort of thing at least until I'm sticking to a decent budget and have a better understanding of investing. Hopefully I'll also be at a job with much better allocation options within the next year. Good question. It sounds like you already know the answer: quote:I'm guessing I should wait on this sort of thing at least until I'm sticking to a decent budget
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Sep 22, 2015 03:49
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| # ? May 5, 2024 17:32 |
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n8r posted:'No fee' refinances generally increase the amount of money you owe by tacking on the fees to the total loan value. I did some googling and with a 'no fee' refinance the lender can either add the fees to the loan value or they can charge a slightly higher interest rate. Assuming I could find a lender who does the latter and actually covers all fees (including third party), I could still end up with a rate lower than what I'm currently paying and not pay anything extra. It seems more likely that I'd have to pay for at least some of the associated costs though. All taxes have been covered by the estate. For the stock, I potentially pay taxes on the dividends and then when I sell shares I'll pay taxes on any capital gains. The cost basis is the price on the date of my relative's death. The rest (which I think was mostly from selling property) was just given to me as a check and the taxes have already been handled by the estate with some held back to cover any taxes owed for 2015. Once those are taken care of, what's left of the amount held back will be divided up so I'll likely receive another small check at that time (which will go to my Roth IRA). From what my real estate agent has told me, houses around the price I'm asking aren't selling well in my town this year. The house could use some updates, but the price reflects that so we don't think I'm asking too much. The agent actually said "white flight" which makes sense because there's an even smaller town nearby that people think has less crime/fewer minorities. Fox News, Rush Limbaugh, Glenn Beck, etc. are all very popular around here. I briefly thought about renting it and could definitely do so if I pay off the mortgage, but I'm not sure I want to deal with a residential rental. I've had family members that have and it seems like it could easily be more trouble than it's worth. I'm hoping it will sell quickly early next spring. The agent thinks I might have had better luck this year if I'd gotten it on the market a few months earlier. I'm leaning towards paying off most/all of the mortgage at this point. Hopefully I won't have the house for too long and it's basically a guaranteed 6.54% return which can definitely be beat, but not with as much certainty. oRenj9 posted:http://beginnersinvest.about.com/od/analyzingabalancesheet/a/analyzing-a-balance-sheet.htm Thank you. I'll go through that and check out his blog then take another look at the bank numbers and then see how comfortable I am with my knowledge and the stock.
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Sep 22, 2015 04:59
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