Author Topic: advice on what to focus next  (Read 2798 times)

kevinb421

  • 5 O'Clock Shadow
  • *
  • Posts: 97
advice on what to focus next
« on: August 18, 2014, 10:34:54 AM »
Hello all!

I am looking for advice on my next focus fire with my savings/income.
I just took a new job making $48,000 a year which is about a 12k a year pay bump! With this in mind I am looking for some input on a situation.
Here are the details

Income
Primary income - $48,000
My business/side hustle - $18,000
Side hustle 3 - $7,000
Rental income - $950/month or $11,400

Total annual income- $84,400

Home Mortgage - $117,600 - 15 year fixed 4.125%
Rental Mortgage - $50,000 - 10 year fixed 3.25%
Rental Second - $28,000 - 5 year balloon 4.25% Have enough equity in first mortgage to roll in this, but I want to put this off because I have great interest rates( from when I owned them instead of them being investment loans)
Misc retirement assets $25,000
Emergency fund - $2,000

My question is should I focus on the rental, primary residence, or maxing out retirement? From a security stand point I do put more emphasis on being debt free than saving, but I want to make sure I have a healthy balance on the two.
Here is how i can justify the logic on all options.
Pay of the house first PROS: security from having debt free home means I can take more risks in life, if things turn down I always have a place to live. No mortgage frees up a lot of cash to increase stash. CONS: It is a huge number that would take a few years to pay off.

Pay off the Rental first: PROS: 5 year balloon has 4 years to be paid or else I have to refinance. It is a smaller amount and could be gone in 3 years or less. CONS: paying off the interest only doesn't really generate any additional cash flow to help snowball any other debt or stashe growth.

Screw them all, and Grow the stash: PROS: money starts working for me right away. I have a strong enough savings rate to really grow it quickly. CONS: Still have mortgage debt. in 4 years I still need to somehow address this rental balloon.

So that's pretty much the skinny on it. Any other insights you may have would be great. I love being here, because in my social life I am the frugal one who gets all the questions. Here I am a guppie in an ocean.

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 40
  • Location: USA
Re: advice on what to focus next
« Reply #1 on: August 18, 2014, 11:14:07 AM »
Congrats on the new job/pay bump! I would:

1) Refi the home mortgage to a 15 year 3.25%, then pay only the minimum from here on out.
2) Invest $5k/year into a taxable brokerage. This will be used to pay off your balloon when it comes due if necessary. Unless the market tanks it should provide you with plenty.
3) Invest everything else you can into 401K, IRA, SIMPLE IRA, etc. I would go all traditional, no Roth (unless you're married-I saw no indication)
4) Don't prepay the Rental Mortgage. That rate is low and tax deductible, so you should invest any excess.

I think you're in good shape though, so keep it up.

ac

  • Stubble
  • **
  • Posts: 104
Re: advice on what to focus next
« Reply #2 on: August 18, 2014, 11:16:05 AM »
I recommend increasing retirement savings to get both the market growth and also tax savings. 

Once you max that out, then the question is do you want to put more money into market investments outside a retirement plan (taxable brokerage) or pay down debt?

kevinb421

  • 5 O'Clock Shadow
  • *
  • Posts: 97
Re: advice on what to focus next
« Reply #3 on: August 18, 2014, 11:45:39 AM »
Congrats on the new job/pay bump! I would:

1) Refi the home mortgage to a 15 year 3.25%, then pay only the minimum from here on out.
2) Invest $5k/year into a taxable brokerage. This will be used to pay off your balloon when it comes due if necessary. Unless the market tanks it should provide you with plenty.
3) Invest everything else you can into 401K, IRA, SIMPLE IRA, etc. I would go all traditional, no Roth (unless you're married-I saw no indication)
4) Don't prepay the Rental Mortgage. That rate is low and tax deductible, so you should invest any excess.

I think you're in good shape though, so keep it up.

isn't 4 years a little too short of time to be putting everything into a taxable account? I have a guaranteed return by just paying it directly to the loan each month? Not being sarcastic, actual question.

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 40
  • Location: USA
Re: advice on what to focus next
« Reply #4 on: August 18, 2014, 12:10:45 PM »
Congrats on the new job/pay bump! I would:

1) Refi the home mortgage to a 15 year 3.25%, then pay only the minimum from here on out.
2) Invest $5k/year into a taxable brokerage. This will be used to pay off your balloon when it comes due if necessary. Unless the market tanks it should provide you with plenty.
3) Invest everything else you can into 401K, IRA, SIMPLE IRA, etc. I would go all traditional, no Roth (unless you're married-I saw no indication)
4) Don't prepay the Rental Mortgage. That rate is low and tax deductible, so you should invest any excess.

I think you're in good shape though, so keep it up.

isn't 4 years a little too short of time to be putting everything into a taxable account? I have a guaranteed return by just paying it directly to the loan each month? Not being sarcastic, actual question.

I don't think so, but it's up to you, I was saying what I would do.

I started this thread so you'll see I like debt, but checkout the last line of reply #44 which I believe I linked here:
http://forum.mrmoneymustache.com/ask-a-mustachian/let's-settle-this-with-a-vote-invest-or-payoff-debts/msg350106/#msg350106

This was my favorite reply in the thread. Let the market decide your course. I'd rather save the cash and plan to get a larger return than the 4.25% you are currently paying. If the market takes off you'll have enough and then some. You might not even need this money to payoff the balloon as it could be refinanced, paid off from rental profits, etc. What do you have to lose?

I think you are in a great position to be as aggressive as your personality will allow since your debts are all good ones with low interest rates.

kevinb421

  • 5 O'Clock Shadow
  • *
  • Posts: 97
Re: advice on what to focus next
« Reply #5 on: August 18, 2014, 02:05:31 PM »
that is an interesting approach. Don't think of it as the risk in the short term, but if it grows to a fair amount then great, if not, just pay from different sources and let the investment recover the market swings.


Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 40
  • Location: USA
Re: advice on what to focus next
« Reply #6 on: August 18, 2014, 02:29:20 PM »
Yeah, this is not an isolated decision that must be taken care of in 5 years. IMO This should be looked at within the greater picture of your entire portfolio, and anything can be changed at any point to reduce the debt.