Paying off everything off while young | TigerDroppings.com

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braindeadboxer
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Utopia
Member since Nov 2011
5015 posts

Paying off everything off while young



I'd like some opinions on this matter. I'll be heading out of state soon to work on a large project. I stand to clear between 300-400k over the next 3 years that will for the large part be saved as I have zero debt. That number excludes any potential bonus money after the completion. I am 27, unmarried although will likely soon be engaged.

Would it be wise for me to use that money to come home and pay for a nice home and some acreage cash? I know I'd clean out a chunk of my savings doing so (I'll still have money in the bank, I would be responsible with it). I'd be ~30ish, with a paid for home, and no significant debt. Or would I be better off setting a large chunk of it in a retirement account.

My reasoning is that with me being young, I'll have the rest of my career to be debt free and putting every spare cent into investments and retirements without worrying about a mortgage or debt payments.







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jeepfreak
LSU Fan
Back in the BR
Member since Oct 2003
18900 posts

re: Paying off everything off while young


If you won't need the money for a long time, you should invest it and let it grow. Buy and hold.





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Zach
LSU Fan
Member since May 2005
64066 posts

re: Paying off everything off while young


I wouldn't blow it on a nice house when young. Your taste and decision making on a nice home will change.
I would pay cash for vehicles and invest the rest. In fact, I've never financed a car. Paid $900 for a used car when I was 16. The money I would have spent on a note I placed in savings and accrued enough to pay $1,550 for a better used car at 19.
I continued that habit of saving the 'non note' until I was able to pay cash for a cheap new car by 25 and a nice new car by 35.
As for investing..I'm all for blue chip buy and hold.






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LSUGUMBO
New Orleans Saints Fan
Shreveport, LA
Member since Sep 2005
4933 posts
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re: Paying off everything off while young


I think if it was me, I'd dedicate 50-60K for retirement and 100-125K, for a good, solid down payment on a house, then you can always pay extra on the house note every month if you want to pay it off early.

If you're just now getting engaged, assuming you don't have kids, you don't need to buy your forever home yet, so buy you and "the little wife" a nice sized starter home and save some money for your upgrade.






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braindeadboxer
LSU Fan
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Member since Nov 2011
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re: Paying off everything off while young


quote:

I would pay cash for vehicles


I'm already doing this. I bought my first truck out of school and paid it off about a year later. Every vehicle from now on will be cash.

quote:

Your taste and decision making on a nice home will change.


Good point, although I've wanted ~ 20 acres in the woods and a lake for many years now. It's the environment I'd like to raise my kids in. And I have no plans to make a permanent move away from home. I'm a small town and family oriented guy.



This post was edited on 11/1 at 1:59 pm


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braindeadboxer
LSU Fan
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Member since Nov 2011
5015 posts

re: Paying off everything off while young


quote:

I'd dedicate 50-60K


This is actually around the number I've been thinking of investing over that time frame. I'm just trying to get some outside opinions from folks without a dog in this fight.

My parents are the ones pushing the cash for the house idea. But they also came up in difficult times and know what its like to struggle to pay a mortgage. They've raised me to hate owing anyone anything, especially banks. I don't think it is necessarily a bad view point, but I don't want to cut myself short on the investing side of things.






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Zach
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Member since May 2005
64066 posts

re: Paying off everything off while young


quote:

Good point, although I've wanted ~ 20 acres in the woods and a lake for many years now. It's the environment I'd like to raise my kids in. And I have no plans to make a permanent move away from home. I'm a small town and family oriented guy.


When I was 11 years old I visited an aunt who had a place on Pass Christian.. a bay off the Gulf. Growing up I was very poor but that image stuck in my head all my life.

When I finally had enough money at age 40 to buy lakefront and design a house I patterned the house design after my memories of her place.






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braindeadboxer
LSU Fan
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Member since Nov 2011
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re: Paying off everything off while young


quote:

Pass Christian


I'm very familiar with that place. I love the coast






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Korkstand
LSU Fan
Plaquemine, LA
Member since Nov 2003
9778 posts

re: Paying off everything off while young


quote:

I don't want to cut myself short on the investing side of things

Then break out the calculator (and someone please correct me if I'm wrong):

Let's assume you end up with $200k that you can't decide whether to invest it or pay the house off.

Assuming you invest it and finance $200k for a house at 5% for 15 years, your payments will be around $1600, which results in about $285k in payments. Meanwhile, your $200k investment with no additions will have grown to about $490k after 15 years (assuming a modest 6%).

Now let's assume you use that $200k to buy the house, and invest that extra $1600 per month you will have instead. After 15 years, you will end up putting that same $285k aside, but it will have only grown to about $465k.

So, 15 years on, you will have a paid-for house either way, but by investing you will have an extra $25k. And that's with the very tight percentage spread I used. You can probably get lower than 5% on a mortgage, and you will probably average better than 6% by investing wisely. Whether that's worth the trade-off for peace of mind by not having a mortgage is up to you.






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Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
19135 posts

re: Paying off everything off while young


Nevermind, this damn thing was up to nine posts.

What field are you in by the way, if you don't mind me asking?



This post was edited on 11/1 at 3:18 pm


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braindeadboxer
LSU Fan
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Member since Nov 2011
5015 posts

re: Paying off everything off while young


quote:

What field are you in by the way


Construction. Petrochem primarily. Half the guys in my company lurk on here so I'm gonna leave the details of this project off







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TheDiesel
LSU Fan
Houston via Baton Rouge
Member since Feb 2010
2442 posts

re: Paying off everything off while young


I agree with Korkstands breakdown. Financing is not the devil that some make it out to be as long as you are smart about it. Peace of mind is worth a lot to some people though so to each his own.





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Teddy Ruxpin
LSU Fan
New Orleans, LA
Member since Oct 2006
19135 posts

re: Paying off everything off while young


quote:

Construction. Petrochem primarily.


Very cool.

quote:

Half the guys in my company lurk on here so I'm gonna leave the details of this project off


I wouldn't have asked to put your neck out like that






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Zach
LSU Fan
Member since May 2005
64066 posts

re: Paying off everything off while young


quote:

Construction. Petrochem primarily.

Well, you're doomed.

Al Gore says so






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Joshjrn
LSU Fan
Baton Rouge
Member since Dec 2008
5973 posts

re: Paying off everything off while young


I see where you're head is at, but interest rates are currently significantly below expected ROI. Certainly put up enough for the house to avoid PMI, but beyond that, I wouldn't let "finance" be a dirty word.

In my opinion, you're vastly overpaying for peace of mind with lost opportunity costs.






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braindeadboxer
LSU Fan
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Member since Nov 2011
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re: Paying off everything off while young


quote:

Well, you're doomed.


I better listen to him. He invented the Internet after all






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Carson123987
LSU Fan
Middle Court at the Rec
Member since Jul 2011
37592 posts

re: Paying off everything off while young


i want to do what you describe





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CAT
LSU Fan
Central Arkansas
Member since Aug 2006
5482 posts

re: Paying off everything off while young


In your situation I'd probably put 20% down on a decent home with a 15 year mortgage. You could then set some money aside to pay cash for land when you find what you want and then invest the rest. As was said earlier, your tastes will change even with that small town attitude. Also with a potential new bride her input may change the plans you have now. I wanted 20-25 acres away from everyone but had to compromise with a 7 acre lot with a neighbor she could at least see. Kids will come and so on.





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TIGRLEE
LSU Fan
North Louisiana
Member since Nov 2009
21374 posts

re: Paying off everything off while young


Debt isn't a bad thing... Especially when money is cheap like it is now.

I'd invest it wisely and buy/mortgage what I could comfortably afford monthly.

Kids are expensive, as is the rest of life.
Keep 50k or so back in emergency funds/savings account.

JMO






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Volvagia
LSU Fan
Baton Rouge
Member since Mar 2006
40798 posts

re: Paying off everything off while young


Look at interest rates.

If any debt is costing you more than 8%, pay it off immediately.

Invest the rest in a buy and hold investment strategy in an index fund or a low cost actively managed one.

Under the current circumstances, it is still fairly adventagous to have secured debt in the form of housing, due to both the low interest rates and the tax write offs it provides.

So if you are looking at a house, and plan on being there for at least 8 years or so, go ahead and buy one putting down the minimum and investing the rest of the cash flow.

As interest rates increase, look to increase principal payments.



This post was edited on 11/1 at 6:49 pm


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