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Started By
Message
What to do with 1 year increased pay?
Posted on 3/7/24 at 9:02 am
Posted on 3/7/24 at 9:02 am
I'm making a lot more money this year, but only for this year. My salary will revert back in 2025. I'm considering putting an extra $13k to max out my 401k but don't really want to as it's the safe and boring choice. I'd rather put it towards savings to buy a better home or maybe consider the idea of purchasing my first rental property. I also probably need to buy a new vehicle in the next year or 2. Let me know what yall think is best.
Currently single and 31 years old
Retirement accounts (401k, HSA, Roth IRA): $186k
Taxable Brokerage: $78k
Cash (including emergency fund): $57k
Debt: I owe $335k at 3.25% on a mortgage, probably have about $45k in equity. I'm paying PMI on this at $158 per month but don't intend to stay in this house long term.
Currently single and 31 years old
Retirement accounts (401k, HSA, Roth IRA): $186k
Taxable Brokerage: $78k
Cash (including emergency fund): $57k
Debt: I owe $335k at 3.25% on a mortgage, probably have about $45k in equity. I'm paying PMI on this at $158 per month but don't intend to stay in this house long term.
Posted on 3/7/24 at 10:36 am to Yeti_Chaser
Doing something with it to improve your monthly budget situation after your salary goes back down makes a lot of sense. It is an opportunity to free up discretionary spending at a lower income. That usually leads to less stress and more enjoyment.
Posted on 3/7/24 at 4:28 pm to Yeti_Chaser
Max out your 401k first. Your future self will thank you.
Posted on 3/7/24 at 4:38 pm to Yeti_Chaser
quote:
Taxable Brokerage: $78k Cash (including emergency fund): $57k
Well good for you.
Posted on 3/7/24 at 4:39 pm to Mom2KandK
Enjoy it now on hookers and blow. After you get married and have kids it will all disappear anyway.
Posted on 3/7/24 at 5:00 pm to Yeti_Chaser
401K then Brokerage would be my move.
Posted on 3/7/24 at 5:06 pm to Yeti_Chaser
How much is the pay increase and what will it go back to in 2025?
Posted on 3/7/24 at 5:46 pm to slackster
quote:
How much is the pay increase and what will it go back to in 2025?
Ding ding ding.
Posted on 3/7/24 at 11:35 pm to slackster
$115k increased to around $150k and then back down to $115ish next year.
Posted on 3/8/24 at 5:59 am to Yeti_Chaser
You seem to be in a pretty decent spot for 31, why not do something for yourself with it?
Put half into maxing your 401k and spend the other half on a trip you've always wanted to do.
Or theres always cocaine and hookers... but don't forget about Iraqi Dinars
Put half into maxing your 401k and spend the other half on a trip you've always wanted to do.
Or theres always cocaine and hookers... but don't forget about Iraqi Dinars
Posted on 3/8/24 at 7:36 am to Yeti_Chaser
That PMI is really high. What do you need to get the mortgage balance down to in order to eliminate it? For example, let’s say at a $305k balance, PMI drops off. That’s $30k.
You are paying $1,896 a year in PMI. If you threw $30k at the mortgage, that’s pretty much an immediate 6.3% return on your money for eliminating PMI + a 3.25% return for paying down your mortgage.
There are some nuances to the numbers above, but given your excessively large emergency fund and increased salary, paying down that mortgage to eliminate PMI is a no brainer to me if you plan to be in the house at least another year.
You are paying $1,896 a year in PMI. If you threw $30k at the mortgage, that’s pretty much an immediate 6.3% return on your money for eliminating PMI + a 3.25% return for paying down your mortgage.
There are some nuances to the numbers above, but given your excessively large emergency fund and increased salary, paying down that mortgage to eliminate PMI is a no brainer to me if you plan to be in the house at least another year.
Posted on 3/8/24 at 7:43 am to Yeti_Chaser
quote:
$115k increased to around $150k and then back down to $115ish next year.
I'd start the job search December 1st with availability to start January 2nd.
Posted on 3/8/24 at 7:47 am to Yeti_Chaser
Fund a Roth IRA and max HSA before more taxable investments. HSA I'd triple tax advantaged pay out of pocket if you can and keep reciepts for future tax free withdrawals.
Posted on 3/8/24 at 9:58 am to PhiTiger1764
quote:
paying down that mortgage to eliminate PMI is a no brainer to me if you plan to be in the house at least another year.
This is definitely a thought I've had, but I'm not quite sure how it works (first home) so im glad you mentioned it. Let me know if anything I'm saying is off-base.
My understanding is that I would need to get it re-appraised and my loan will need to be less than 20% of the total value of the home. So if the home appraises for $380k then I need to owe less than $304k which would mean paying $31k down on the principal. Re-appraising is not a refinance so it won't affect my mortgage rate, but it will cost ~$500.
My struggle is that it feels like I'm tying up $31.5k in exchange for $1900 per year. Yea I guess that's a 6% return, but my 401k has been outperforming that plus you have to think about the tax savings from the 401k (and I believe you get a tax deduction for PMI?). I'm not sure how much to value the 3.25% return from paying down the mortgage if I only expect to be in the house for another 2 years or so. Is it really best to tie up all that money? That could be used for a down payment on a rental property if I chose to get off my arse and jump into that world, though I don't know what I'm doing so that may be a ways off.
This post was edited on 3/8/24 at 10:00 am
Posted on 3/8/24 at 10:20 am to Yeti_Chaser
A few of things…
I assumed (maybe incorrectly) that you had a conventional loan. If you don’t have a conventional loan, then you are stuck with PMI unless you refinance. If you have a conventional loan, you can get rid of PMI through two ways:
1. As you stated, pay for an appraisal and loan needs to be 80% of value of home. This may be worth if if you feel the property has appreciated significantly since you bought it.
2. Paying down your mortgage to 78% of the original sales price. PMI automatically goes away when you reach this milestone. No appraisal needed.
Keep in mind the added benefit of paying down your 3.25% mortgage which gives you a total ~ 9.25% return. That’s how I view it.
It’s deductible if you itemize but not if you take the standard deduction which applies to the overwhelming majority of the population and likely to you.
Ultimately your call… you are correct, a lot of things you can do with this cash. For someone single and 31 I feel like that’s a lot of cash on hand. Personally, I’m also not really a big on emergency funds unless you don’t have any assets. That doesn’t apply to you. You could tap brokerage and Roth IRA for emergencies if needed.. plus the $20k cash you’d still have after paying down mortgage.
I assumed (maybe incorrectly) that you had a conventional loan. If you don’t have a conventional loan, then you are stuck with PMI unless you refinance. If you have a conventional loan, you can get rid of PMI through two ways:
1. As you stated, pay for an appraisal and loan needs to be 80% of value of home. This may be worth if if you feel the property has appreciated significantly since you bought it.
2. Paying down your mortgage to 78% of the original sales price. PMI automatically goes away when you reach this milestone. No appraisal needed.
quote:
My struggle is that it feels like I'm tying up $31.5k in exchange for $1900 per year. Yea I guess that's a 6% return, but my 401k has been outperforming that
Keep in mind the added benefit of paying down your 3.25% mortgage which gives you a total ~ 9.25% return. That’s how I view it.
quote:
and I believe you get a tax deduction for PMI?
It’s deductible if you itemize but not if you take the standard deduction which applies to the overwhelming majority of the population and likely to you.
quote:
Is it really best to tie up all that money? That could be used for a down payment on a rental property if I chose to get off my arse and jump into that world
Ultimately your call… you are correct, a lot of things you can do with this cash. For someone single and 31 I feel like that’s a lot of cash on hand. Personally, I’m also not really a big on emergency funds unless you don’t have any assets. That doesn’t apply to you. You could tap brokerage and Roth IRA for emergencies if needed.. plus the $20k cash you’d still have after paying down mortgage.
Posted on 3/8/24 at 10:52 am to Yeti_Chaser
quote:
My understanding is that I would need to get it re-appraised and my loan will need to be less than 20% of the total value of the home.
You should have been provided a specific PMI elimination number when you signed up. You "should" only need an appraisal if you are trying to claim added equity from property value increases to hit the 20% equity mark.
Posted on 3/8/24 at 2:43 pm to Grinder
Agree. Max out and I wish I would have bought more Roth IRA’s. You’re in great financial shape for your age.
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