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Message
Financial Advice (Investment vs Debt) - My Situation
Posted on 4/14/18 at 8:30 pm
Posted on 4/14/18 at 8:30 pm
In my early 30's. Wife and I do well. Combined we make around 250K (base salary) before taxes. I am in year two of a 15 year mortgage on my house with about 65 to 75K in equity.
Current debts:
1. Student Loans - 12K $250/month 3 to 6%
2. Truck - 40K $750/month 5%
3. Wife car - 30k $450/Mmonth 3%
4. Credit card / misc - 2K
5. Mortgage - 212K - $2,000 / Month 2.875%
My wife any I contribute 10% each to our 401K with company matches, etc. I also have an esop - 5% salary.
Last year i put 25K in a vanguard account for future use.
My 401K is only worth about 50K. Wife's, around 60K.
I currently have about 80K in my savings account doing nothing. My wife and I had good bonuses this year, around 100k, which we hope will become an annual thing.
(This amount of money is new to us as we both come from middle class families and have recently made some nice jumps in the corporate world.) Im thinking of investing or paying off debt with about 60 to 70K. Leaving the rest for the rainy day fund.
Market currently scares me with all the BS going on, I have a medium tolerance when it comes to risk.
Should I pay off my student loans, vehicles, or invest more in my vanguard?
We do well, (debt/income ratio is probably pretty good) so cash flow isnt really an issue. So this leads me to want to invest the money and let the car / loan payments just manage themselves over time.
One side of me hates debt and wants to rid myself of the car payments, the other side of me wants to invest and see this money grow over time.
What would you do if you were me?
Thanks
Current debts:
1. Student Loans - 12K $250/month 3 to 6%
2. Truck - 40K $750/month 5%
3. Wife car - 30k $450/Mmonth 3%
4. Credit card / misc - 2K
5. Mortgage - 212K - $2,000 / Month 2.875%
My wife any I contribute 10% each to our 401K with company matches, etc. I also have an esop - 5% salary.
Last year i put 25K in a vanguard account for future use.
My 401K is only worth about 50K. Wife's, around 60K.
I currently have about 80K in my savings account doing nothing. My wife and I had good bonuses this year, around 100k, which we hope will become an annual thing.
(This amount of money is new to us as we both come from middle class families and have recently made some nice jumps in the corporate world.) Im thinking of investing or paying off debt with about 60 to 70K. Leaving the rest for the rainy day fund.
Market currently scares me with all the BS going on, I have a medium tolerance when it comes to risk.
Should I pay off my student loans, vehicles, or invest more in my vanguard?
We do well, (debt/income ratio is probably pretty good) so cash flow isnt really an issue. So this leads me to want to invest the money and let the car / loan payments just manage themselves over time.
One side of me hates debt and wants to rid myself of the car payments, the other side of me wants to invest and see this money grow over time.
What would you do if you were me?
Thanks
10
Posted on 4/14/18 at 8:34 pm to LSUisBetterthanU
Well first, I’m concerned about carrying a penny of CC debt when you have 80k cash sitting there.
Get the frick rid of that.
Literally right now.
Get the frick rid of that.
Literally right now.
Posted on 4/14/18 at 8:42 pm to LSUisBetterthanU
quote:
What would you do if you were me?
quote:
Student Loans - 12K $250/month 3 to 6%
quote:
Mortgage - 212K - $2,000 / Month 2.875%
For how much you make, these are excellent. You're in good shape here. A lot of people making good money took on a lot of debt to do so.
quote:
Truck - 40K $750/month 5%
3. Wife car - 30k $450/Mmonth 3%
I think this is absurd to pay this much for cars, but you did so well on those first two it's somewhat forgivable.
quote:
My wife any I contribute 10% each to our 401K with company matches
No excuse at your income level to not max these out. At your income level you should be in tax saving mode 24/7. Defer, defer, defer.
quote:
Credit card / misc - 2K
Is this actually incurring interest? Again, at your income that shouldn't happen.
So I'd say overall you're doing great. First, max your 401k. CC debt should go at same time. Then your high interest student loan debt.
I hate your car purchase prices. I'm also shocked the rate is 5%. Which means your credit kinda sucks. You need to improve that a bit.
And for the record, I'm by no means perfect. We all make "mistakes." Just trying to be objective.
This post was edited on 4/14/18 at 8:46 pm
Posted on 4/14/18 at 8:47 pm to Teddy Ruxpin
Thanks for the responses thus far.
I was guessing i have about 2K in misc credit card debt. Most of it is actually interest free. Like best buy CC. Paying it off isnt an issue, I just havent since its interest free.
I was also guessing at the car loan rates as I dont remember them off the top of my head. They might be less.
Yes, we drive a lot and we like nice vehicles.
I was guessing i have about 2K in misc credit card debt. Most of it is actually interest free. Like best buy CC. Paying it off isnt an issue, I just havent since its interest free.
I was also guessing at the car loan rates as I dont remember them off the top of my head. They might be less.
Yes, we drive a lot and we like nice vehicles.
Posted on 4/14/18 at 8:49 pm to LSUisBetterthanU
Get rid of your truck note and drive it for 12 plus years
Posted on 4/14/18 at 8:51 pm to Teddy Ruxpin
quote:
I hate your car purchase prices. I'm also shocked the rate is 5%. Which means your credit kinda sucks. You need to improve that a bit
Credit score is actually around 740/750. I might have mistakenly guessed at rate on loan in trying to provide info here.
Posted on 4/14/18 at 8:53 pm to LSUisBetterthanU
Good deal. I'm in the age group as you. People have different tolerances for things so you have to do what let's you sleep at night.
For example, I'm one of those people who doesn't mind debt and am investing for the long term, so all I care about is rates. If I have 100k in debt at 2% interest for 30 years, and I'm sitting on 100k making 5%, I'm not paying off that debt, I'm just letting it ride.
A lot of people aren't cool with that. In your case, 80k making nothing would make me feel worse than making that money work for me. You're wired a little different. However, I think using the 80k on the 6% student debt is a no brainier for peace of mind.
All the 3% debt and lower wouldn't make me think twice to let ride, but you can do otherwise. Let your mortgage ride, it's fine. BTW, how cheap did you get it? $2,000 a month on a 15 at 250k a year? frick I'm jealous.
You really need to get that's 80k working for you, at least a part of it IMO.
Just remember that your cars are depreciating assets along with the interest. Leaving emotions aside they suck, but like I said, we all have our thing.
For example, I'm one of those people who doesn't mind debt and am investing for the long term, so all I care about is rates. If I have 100k in debt at 2% interest for 30 years, and I'm sitting on 100k making 5%, I'm not paying off that debt, I'm just letting it ride.
A lot of people aren't cool with that. In your case, 80k making nothing would make me feel worse than making that money work for me. You're wired a little different. However, I think using the 80k on the 6% student debt is a no brainier for peace of mind.
All the 3% debt and lower wouldn't make me think twice to let ride, but you can do otherwise. Let your mortgage ride, it's fine. BTW, how cheap did you get it? $2,000 a month on a 15 at 250k a year? frick I'm jealous.
You really need to get that's 80k working for you, at least a part of it IMO.
Just remember that your cars are depreciating assets along with the interest. Leaving emotions aside they suck, but like I said, we all have our thing.
This post was edited on 4/14/18 at 8:58 pm
Posted on 4/14/18 at 9:04 pm to LSUisBetterthanU
Opinions vary, but I love the feeling of being debt free...I’d pay most if not all of it off, certainly anything that you’re paying more than 3% or so on.
Max out the 401K’s and then DCA all the money you’ve freed up by paying off vehicles and student loans into your Vanguard account and other investments.
Max out the 401K’s and then DCA all the money you’ve freed up by paying off vehicles and student loans into your Vanguard account and other investments.
Posted on 4/14/18 at 9:49 pm to LSUisBetterthanU
At $250k, max out the 401k
The investment versus debt argument is funny to me. If the market crashes, the 5% return is gone. Will the debt be gone? The debt is garanteed , the investment income , not so much. (Unless your are in rental income and tax free bonds , but typically those don't make 5%. ) I'm just wondering how many folks were saying things similar to you in 2007. I mean, I'm not hating on you, just saying.
I am a fan to getting debt down to 0 as fast as I can. But that's me.
The investment versus debt argument is funny to me. If the market crashes, the 5% return is gone. Will the debt be gone? The debt is garanteed , the investment income , not so much. (Unless your are in rental income and tax free bonds , but typically those don't make 5%. ) I'm just wondering how many folks were saying things similar to you in 2007. I mean, I'm not hating on you, just saying.
I am a fan to getting debt down to 0 as fast as I can. But that's me.
This post was edited on 4/14/18 at 9:51 pm
Posted on 4/14/18 at 10:04 pm to crazycubes
quote:
Unless your are in rental income and tax free bonds , but typically those don't make 5%. )
i surely hope that last comment was reserved for bonds and not rental income.
Posted on 4/14/18 at 10:06 pm to Fat Bastard
Yes bonds
Posted on 4/14/18 at 10:09 pm to crazycubes
quote:
The investment versus debt argument is funny to me. If the market crashes, the 5% return is gone. Will the debt be gone? The debt is garanteed , the investment income , not so much. (Unless your are in rental income and tax free bonds , but typically those don't make 5%. ) I'm just wondering how many folks were saying things similar to you in 2007. I mean, I'm not hating on you, just saying.
Well, when you conflate the interest rate over the long term with a two year crash you're not going to understand the argument.
The problem with this board/medium is none of us have the time nor space to go through the 300 different variables.
If you have assets to keep paying your debts in a downturn. If you keep your job in a downturn. If you can keep your faith in a downturn. If you don't get stupid in a bull market. Your general temperament. Every post would take an hour I don't have.
I mean, what happens if you pay off all your debt and you don't have cash left over and the market tanks, and you lose your job? What happens then? More debt.
This post was edited on 4/14/18 at 10:12 pm
Posted on 4/14/18 at 10:13 pm to Teddy Ruxpin
quote:
Every post would take an hour I don't have.
bullshite!
your arse takes 18 hour flights. you have plenty time!
Posted on 4/14/18 at 10:16 pm to Fat Bastard
quote:
your arse takes 18 hour flights. you have plenty time
you caught mePosted on 4/14/18 at 10:17 pm to Teddy Ruxpin
quote:
what happens if you pay off all your debt and you don't have cash left over and the market tanks, and you lose your job? What happens then? More debt.
You are really right that there are a lot of hypotheticals here.
I would never advocate paying off all debt and then live pay check to pay check because one has no more cash.
My thinking is that this isn't 2% versus 5%, it's 2% guaranteed versus 5% maybe.
For me, I enjoy piece of mind of 0% (no debt) versus what ever the market gives me.
Eta: now off to bed in my paid off house
to all you money board peeps! This post was edited on 4/14/18 at 10:22 pm
Posted on 4/14/18 at 10:22 pm to crazycubes
quote:
For me, I enjoy piece of mind of 0% (no debt) versus what ever the market gives me.
kinda agree but if i was OP id split putting money away with agressively paying off the student loans with vehicles. I'd milk the house note. my house has been paid off for years but i am sure i had a high rate by todays standards plus did not owe too much plus my situation was up and down and i had crawled out from debt time after time due to job loss and medical bills so it was time for it to go away. i have one SUV note. 4 other things are paid off. my rentals pay for themselves. now when i build my retirement home in nova scotia i'll most probably milk that low note as it will be the only one i will have.
Posted on 4/14/18 at 10:23 pm to Teddy Ruxpin
quote:
you caught me
Posted on 4/14/18 at 10:31 pm to LSUisBetterthanU
quote:
I was guessing i have about 2K in misc credit card debt. Most of it is actually interest free.
quote:
I was also guessing at the car loan rates as I dont remember them off the top of my head. They might be less.
My first suggestion is to stop guessing at stuff like this and know the exact numbers. You can't make the right decision unless you know what you're dealing with.
Posted on 4/14/18 at 10:34 pm to Fat Bastard
quote:
kinda agree but if i was OP id split putting money away with agressively paying off the student loans with vehicles. I'd milk the house note.
That's what I felt. 80k would be a shame to throw all at debt. I think splitting the baby matches well with his situation, temperament and means.
This post was edited on 4/14/18 at 10:35 pm
Posted on 4/14/18 at 11:12 pm to LSUisBetterthanU
With $80K cash in a savings account doing literally next to nothing and a gross monthly income of over $20K/month, what department store CC could you possibly truly need to carry any balance on?
Not trying to poke holes in your story but that makes zero sense. Pay it off and get rid of any department store CC’s. If you have miles or cash back deals a few would be helpful I’m sure. I personally don’t have any but I get that they have their uses. For you I don’t understand them due to your monthly income.
Your car notes are atrocious to me. But in context they’re tolerable based on DTI. I would just never pay for an everyday driver that wasn’t like a work truck of some type and spend that on a note. But your income bails you out of what appears to be potential vanity purchases.
What’s worrisome is that you say that your income bumps have been recent developments at work. So you either already had huge car notes before you could really justify or you couldn’t wait to run out and choke down some pretty big notes. Maybe there’s not enough info to confirm, but it seems like you are running up debt with the quickness.
Anyway...if I were you (remember I’m not)...
1.) Pay off student debt
2.) Pay off all CC’s
3.) Pay off cars
4.) Max out retirement contributions at work & with IRA/whatever (offset by no notes on autos/CC/student loans).
5.) Make plan for expected bonuses next year.
6.) Plan a badass vacay as a part of #5
Not trying to poke holes in your story but that makes zero sense. Pay it off and get rid of any department store CC’s. If you have miles or cash back deals a few would be helpful I’m sure. I personally don’t have any but I get that they have their uses. For you I don’t understand them due to your monthly income.
Your car notes are atrocious to me. But in context they’re tolerable based on DTI. I would just never pay for an everyday driver that wasn’t like a work truck of some type and spend that on a note. But your income bails you out of what appears to be potential vanity purchases.
What’s worrisome is that you say that your income bumps have been recent developments at work. So you either already had huge car notes before you could really justify or you couldn’t wait to run out and choke down some pretty big notes. Maybe there’s not enough info to confirm, but it seems like you are running up debt with the quickness.
Anyway...if I were you (remember I’m not)...
1.) Pay off student debt
2.) Pay off all CC’s
3.) Pay off cars
4.) Max out retirement contributions at work & with IRA/whatever (offset by no notes on autos/CC/student loans).
5.) Make plan for expected bonuses next year.
6.) Plan a badass vacay as a part of #5
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