Author Topic: What to do with 70k cash  (Read 3391 times)

mommy214

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What to do with 70k cash
« on: May 06, 2017, 12:18:31 PM »
My husband and I make roughly 80k/yr between us. We have 2 kids 2 and 6

36k in a savings account (so cash on hand)
18k in a rollover IRA
5k in a simple IRA
39k Cash life insurance policy from my mothers recent death
5k 401k Moms death (I need to do something with this soon)


Debt:
10k car loan (2%) Im not sure what my interest rate is
12k student loan (4.5%)
57k home loan (6%)

I would say our current expenses/month are around 2400. The value of our home is estimated at 130k.

The bad news is my husband lost his job two weeks ago He made 50k per year. I would like to make our money work for us as I don't know how long he will be out of work.

I was thinning of refinancing the house to a 15year 3.75% borrowing 61k. I was not sure if this was a good idea or should we just pay it off

other thoughts were pay off the car and and the student loan?

Any help with this would be great.
« Last Edit: May 06, 2017, 01:13:25 PM by mommy214 »

NeonPegasus

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Re: What to do with 70k cash
« Reply #1 on: May 06, 2017, 01:34:35 PM »
Take the $39k and pay off the car loan and the student loan. That will use $22k and leave $17k. That will also get rid of two monthly payments, which should make it easier while your husband is looking for a job. Hang onto the $17k until he gets a job.

Once he does, take the remaining $17k and all of your cash except 6 mo of expenses (I'm guessing $14-15k?) and invest. If you don't have to go into cash reserves, that would be $38k. Max out Roths. That will take $11k, leaving $27k.

Refinancing the house sounds like a good idea, though I wouldn't borrow extra.

I would put the rest of the cash in a brokerage account. If you get your mortgage interest rate down, I think you'd be better off investing your money than paying off part of the mortgage.


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minimalistgamer

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Re: What to do with 70k cash
« Reply #2 on: May 06, 2017, 05:50:51 PM »
Absolutely pay off the debt first.

mommy214

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Re: What to do with 70k cash
« Reply #3 on: May 06, 2017, 06:36:16 PM »
Thank you for great advise!

Next question pay the house off or the car/ student loan. We don't have enough to do both options.
If I payed the house we would only have 20K cash left (would need this for emergency fund)
If I payed the car/student loan I would have about 30k left (20k for emergency fund and 10K to invest give or take)

Thoughts:
I will always need a car so pay the house not the car
refinance house pay the car/student loan
keep the house payment I get a tax break
Forget it all and put the money back under my pillow and sleep on it forever Ha Ha

Side note:
( we love our house and see no reason to move anytime soon if ever.)

Ill probably never have this cash given to me again so I want to do what would give me the most financial benefit.

I definitely want to do something wise with the cash



COEE

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Re: What to do with 70k cash
« Reply #4 on: May 07, 2017, 08:01:24 AM »
Congrats on having a 1 year emergency fund!  That's awesome at a time like this!  High freakin' five!

Right now:
With your husband out of work, I'd suggest holding as much cash as possible until he secures new employment.  It's cheaper monthly to make payments on you debts than it is to eliminate them.  This will provide you with more flexibility for a longer period of time and you can roll with the punches.  I'd put all of the money from your mom's passing in an Ally Savings account (Geez, when it rains, it pours, right?) and leave the rest where it's at until you need it.

I'd start by using the money in your savings account, then your mother's inheritance, and then your retirement accounts.  I'd also look into how much you will be taxed on your mother's inheritance - if at all - I just haven't had to cross that bridge yet so I can offer no advice there.

Once husband's new job is secure:
I agree with paying off your student loans and car ASAP.  Then roll the student loan payment and car payment into paying off the house more quickly if you'd like.  Either that or roll the payment into a IRA/401k savings each month.  Whichever you and your DH are more comfortable with.

Regardless of where you decide to put the money, I would look at refinancing to get a lower rate on the house. 6% is pretty high, unless you have bad credit.  I like 15 year mortgages, personally, for the lower rate and shorter term with just a 20-30% larger payment, but that's a pretty personal decision that only you can decide in the end.

Good luck to you and your husband!  Sounds like you're in a pretty good financial spot despite the situation!

boarder42

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Re: What to do with 70k cash
« Reply #5 on: May 08, 2017, 06:53:13 AM »
1. dont pay off any of those loans while he's out of work
2. at 4.5% interest and the interest being above the line tax deductible paying off student loans early at all seems silly to me.
3. paying down a 2% interest car loan i wouldnt do
4. you need to refi your mortgage i'd go 30 year at around 4% if you plan to stay where you are more than 7 years.

then once a job is found max out any tax advantaged space you have left this year and dump the rest into taxable brokerage account following your AA.

mommy214

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Re: What to do with 70k cash
« Reply #6 on: May 08, 2017, 07:40:38 AM »
This has been so helpful thank you everyone for your help

Also in answer to one of the questions my credit score is 825.

COEE

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Re: What to do with 70k cash
« Reply #7 on: May 08, 2017, 07:43:45 AM »
Also in answer to one of the questions my credit score is 825.

Then your house interest rate should be MUCH lower.  I have a similar credit score and recently secured a 15 year home loan at 2.875%.  This will save you THOUSANDS of dollars.

COEE

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Re: What to do with 70k cash
« Reply #8 on: May 08, 2017, 07:50:47 AM »
Quick numbers:
57k home loan

30-year fixed, 6%, if you were to refinance today:
$342 house payment, total price: $123k

15-year fixed, 2.875, if you were to refinance today
$390 house payment, total price: $70k

The house payment is slightly more, but you get the house paid off 15 years quicker, and save over $50k.

This is a no brainier to me... once your husband secures another job.
« Last Edit: May 08, 2017, 07:53:02 AM by COEE »

boarder42

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Re: What to do with 70k cash
« Reply #9 on: May 08, 2017, 07:57:02 AM »
Quick numbers:
57k home loan

30-year fixed, 6%, if you were to refinance today:
$342 house payment, total price: $123k

15-year fixed, 2.875, if you were to refinance today
$390 house payment, total price: $70k

The house payment is slightly more, but you get the house paid off 15 years quicker, and save over $50k.

This is a no brainier to me... once your husband secures another job.

this is poor analysis as the 30 year over the same cycle should be evaluated as well.  Refinancing is a no brainer either way yes.  if you plan to stay over 7 years and invest the difference then going with a 30 year would win out for  you.

yachi

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Re: What to do with 70k cash
« Reply #10 on: May 08, 2017, 08:02:56 AM »
Congrats on having a 1 year emergency fund!  That's awesome at a time like this!  High freakin' five!

Right now:
With your husband out of work, I'd suggest holding as much cash as possible until he secures new employment.  It's cheaper monthly to make payments on you debts than it is to eliminate them.  This will provide you with more flexibility for a longer period of time and you can roll with the punches.  I'd put all of the money from your mom's passing in an Ally Savings account (Geez, when it rains, it pours, right?) and leave the rest where it's at until you need it.

I'd start by using the money in your savings account, then your mother's inheritance, and then your retirement accounts.  I'd also look into how much you will be taxed on your mother's inheritance - if at all - I just haven't had to cross that bridge yet so I can offer no advice there.

Once husband's new job is secure:
I agree with paying off your student loans and car ASAP.  Then roll the student loan payment and car payment into paying off the house more quickly if you'd like.  Either that or roll the payment into a IRA/401k savings each month.  Whichever you and your DH are more comfortable with.

Regardless of where you decide to put the money, I would look at refinancing to get a lower rate on the house. 6% is pretty high, unless you have bad credit.  I like 15 year mortgages, personally, for the lower rate and shorter term with just a 20-30% larger payment, but that's a pretty personal decision that only you can decide in the end.

Good luck to you and your husband!  Sounds like you're in a pretty good financial spot despite the situation!

+1 especially about holding cash while your husband is out of work.

TimmyTightWad

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Re: What to do with 70k cash
« Reply #11 on: May 08, 2017, 08:12:48 AM »

2. at 4.5% interest and the interest being above the line tax deductible paying off student loans early at all seems silly to me.
3. paying down a 2% interest car loan i wouldnt do


Yikes , I'm planning on doing both of the above. Any logic behind not doing it if one has the money sitting around?
The interests are low but if I remove those expenses then I can save/invest that money more quickly.

boarder42

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Re: What to do with 70k cash
« Reply #12 on: May 08, 2017, 08:22:22 AM »

2. at 4.5% interest and the interest being above the line tax deductible paying off student loans early at all seems silly to me.
3. paying down a 2% interest car loan i wouldnt do


Yikes , I'm planning on doing both of the above. Any logic behind not doing it if one has the money sitting around?
The interests are low but if I remove those expenses then I can save/invest that money more quickly.

this is a counter productive thought that people dont approach the correct way.  the money you have sitting around now could be 100% invested.  and based on historic returns getting more money in sooner is better than getting the same in over time.

so  you have 20k in loans and 20k in cash.  that 20k could pay off the loans yes and free up what was going towards the loans to invest.  BUT if you're loans are low interest rates less than what the market returns then investing that 20k now is going to come out ahead more frequently than not.  this also assumes you're maxing all tax advantaged space as well and the comparison is only against money going into taxable accounts.  Here is a pretty good what and Why that MDM put together.  on the order you should invest/ payoff debts.

the 10 year is sitting at ~2.4% right now for reference.

WHAT           
0. Establish an emergency fund to your satisfaction           
1. Contribute to your 401k up to any company match           
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)           
6. Fund mega backdoor Roth if applicable           
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.           
8. Invest in a taxable account with any extra.           
           
WHY           
0. Give yourself at least enough buffer to avoid worries about bouncing checks           
1. Company match rates are likely the highest percent return you can get on your money           
2. When the guaranteed return is this high, take it.*
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.           
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between.
   See Credits can make Traditional better than Roth for lower incomes and other posts in that thread about some exceptions to the rule.
   See Traditional versus Roth - Bogleheads for even more details and exceptions.
   The 'Calculations' tab in the Case Study Spreadsheet can show marginal rates for savings or withdrawals.
5. See #4 for choice of traditional or Roth for 401k           
6. Applicability depends on the rules for the specific 401k           
7. Again, take the risk-free return if high enough           
8. Because earnings, even if taxed, are beneficial           

FLBiker

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Re: What to do with 70k cash
« Reply #13 on: May 08, 2017, 08:26:19 AM »
1. dont pay off any of those loans while he's out of work
2. at 4.5% interest and the interest being above the line tax deductible paying off student loans early at all seems silly to me.
3. paying down a 2% interest car loan i wouldnt do
4. you need to refi your mortgage i'd go 30 year at around 4% if you plan to stay where you are more than 7 years.

then once a job is found max out any tax advantaged space you have left this year and dump the rest into taxable brokerage account following your AA.

+1 on all this.

SuperSecretName

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Re: What to do with 70k cash
« Reply #14 on: May 08, 2017, 08:31:37 AM »
1. dont pay off any of those loans while he's out of work
2. at 4.5% interest and the interest being above the line tax deductible paying off student loans early at all seems silly to me.
3. paying down a 2% interest car loan i wouldnt do
4. you need to refi your mortgage i'd go 30 year at around 4% if you plan to stay where you are more than 7 years.

then once a job is found max out any tax advantaged space you have left this year and dump the rest into taxable brokerage account following your AA.

+1 on all this.
+2.

Don't pay off anything right now.  You need the money until he finds another job.  Your interest rates aren't that terrible.

boarder42

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Re: What to do with 70k cash
« Reply #15 on: May 08, 2017, 09:02:23 AM »
1. dont pay off any of those loans while he's out of work
2. at 4.5% interest and the interest being above the line tax deductible paying off student loans early at all seems silly to me.
3. paying down a 2% interest car loan i wouldnt do
4. you need to refi your mortgage i'd go 30 year at around 4% if you plan to stay where you are more than 7 years.

then once a job is found max out any tax advantaged space you have left this year and dump the rest into taxable brokerage account following your AA.

+1 on all this.
+2.

Don't pay off anything right now.  You need the money until he finds another job.  Your interest rates aren't that terrible.

are great minus the house which you should REFI.

fixed that.

COEE

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Re: What to do with 70k cash
« Reply #16 on: May 08, 2017, 12:09:50 PM »
Quick numbers:
57k home loan

30-year fixed, 6%, if you were to refinance today basically do nothing:
$342 house payment, total price: $123k

15-year fixed, 2.875%, if you were to refinance today
$390 house payment, total price: $70k

The house payment is slightly more, but you get the house paid off 15 years quicker, and save over $50k.

This is a no brainier to me... once your husband secures another job.

this is poor analysis as the 30 year over the same cycle should be evaluated as well.  Refinancing is a no brainer either way yes.  if you plan to stay over 7 years and invest the difference then going with a 30 year would win out for  you.

Meh - okay I'll bite since I'm bored.

57k loan
30-year fixed, 4% (today's average rate), if you were to refinance today:
$272 house payment, total price: $98k

30-year fixed, 3.5% (if you shopped around aggresivlly with your good credit score), if you were to refinance today:
$256 house payment, total price: $92k

So they'll only save $22k instead of $50k.  Whatever.  Either way works to their advantage over where they are at.


But taking this a step further:
If they were able to save nothing over the life of the 15yr loan, and save the entire payment plus another $22k for the next 15 years ($390+$122.22) they would have saved (at 4.5% interest to keep everything in today's dollars) $132k.

If they save the difference in payment over the 30 yr loan ($390-$256) and got a slightly better interest rate (5.125% because they are using borrowed money) they would have saved: $114k

The difference between the two methods are negligible from a theoretical standpoint.  But there's two more things that people always forget!  First, is that 50% of home owners move every 15 years (see table 1: https://www.nahb.org/en/research/housing-economics/special-studies/archives/how-long-buyers-remain-in-their-homes-2009.aspx).  I'd rather have the house paid off than to be only 35% through the principle payment when I go to move.  Second, most Americans won't save the difference between a 15 and 30 year payment.  I understand that people on this forum are different - but most people will think they have another $134/mo to spend and will have saved nothing at the end of 30 years - other than their home.

This is why I always suggest a 15 year loan if they have the bank roll, but am comfortable with the 30 year if that's what people want to do.  It's ultimately the OP's decision, and we can both agree that a 6% mortgage is re-freakin-diculous at today's rates.  Different strategies for different people. I'm not going to post on the topic again because there are threads and threads on this on this website - I'm just offering the OP some options applicable to her situation.

Having said that though - I'm guessing the OP is 10-15 years into a 30 year mortgage based on the numbers presented.  The advice here might be very different if the OP had originally acquired a 15 year loan.

PS. I personally have a 15 year mortgage and am debt free otherwise.  I would have it no other way.  I practice what I preach.

boarder42

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Re: What to do with 70k cash
« Reply #17 on: May 08, 2017, 12:27:36 PM »
Quick numbers:
57k home loan

30-year fixed, 6%, if you were to refinance today basically do nothing:
$342 house payment, total price: $123k

15-year fixed, 2.875%, if you were to refinance today
$390 house payment, total price: $70k

The house payment is slightly more, but you get the house paid off 15 years quicker, and save over $50k.

This is a no brainier to me... once your husband secures another job.

this is poor analysis as the 30 year over the same cycle should be evaluated as well.  Refinancing is a no brainer either way yes.  if you plan to stay over 7 years and invest the difference then going with a 30 year would win out for  you.

Meh - okay I'll bite since I'm bored.

57k loan
30-year fixed, 4% (today's average rate), if you were to refinance today:
$272 house payment, total price: $98k

30-year fixed, 3.5% (if you shopped around aggresivlly with your good credit score), if you were to refinance today:
$256 house payment, total price: $92k

So they'll only save $22k instead of $50k.  Whatever.  Either way works to their advantage over where they are at.


But taking this a step further:
If they were able to save nothing over the life of the 15yr loan, and save the entire payment plus another $22k for the next 15 years ($390+$122.22) they would have saved (at 4.5% interest to keep everything in today's dollars) $132k.

If they save the difference in payment over the 30 yr loan ($390-$256) and got a slightly better interest rate (5.125% because they are using borrowed money) they would have saved: $114k

The difference between the two methods are negligible from a theoretical standpoint.  But there's two more things that people always forget!  First, is that 50% of home owners move every 15 years (see table 1: https://www.nahb.org/en/research/housing-economics/special-studies/archives/how-long-buyers-remain-in-their-homes-2009.aspx).  I'd rather have the house paid off than to be only 35% through the principle payment when I go to move.  Second, most Americans won't save the difference between a 15 and 30 year payment.  I understand that people on this forum are different - but most people will think they have another $134/mo to spend and will have saved nothing at the end of 30 years - other than their home.

This is why I always suggest a 15 year loan if they have the bank roll, but am comfortable with the 30 year if that's what people want to do.  It's ultimately the OP's decision, and we can both agree that a 6% mortgage is re-freakin-diculous at today's rates.  Different strategies for different people. I'm not going to post on the topic again because there are threads and threads on this on this website - I'm just offering the OP some options applicable to her situation.

Having said that though - I'm guessing the OP is 10-15 years into a 30 year mortgage based on the numbers presented.  The advice here might be very different if the OP had originally acquired a 15 year loan.

PS. I personally have a 15 year mortgage and am debt free otherwise.  I would have it no other way.  I practice what I preach.

again your math is still incorrect.  based on historic market returns the 15 year will win out only in short term - assuming you stay less that 7 years.  but this also assumes you dont keep or maintain a 30 year mortgage when you move as well.  here's a calculator for it. 
http://michaelbluejay.com/house/15vs30.html

you're not biting on anything its a simple math equation based on past market returns. and your math is manipulated to try to prove your theory.  not based on historic results.

on a 57k mortgage its not a huge difference but seeing as the OP also appears to have an unstable job not being locked into a higher payment creates another layer of safety along with more liquid capital in the event of another job loss.

the 15 year mortgage increases risk in many areas for OP in my opinion.  and mostly needlessly.