Author Topic: Too much cash on hand? Pay down house, car or invest?! $77K to act on.  (Read 1892 times)

bluffrunner

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First post! Thank you in advance for your input and advice.

We are currently in our early 30s, no kids, no pets and a 2-bed 1-bath house. We have one car (2015 Nissan Rogue) and a 2008 Dodge Sprinter (converted to a campervan, valued at $50K- it is paid off). I bike to work and my wife drives the Rogue. We live pretty simply and spend our time biking, hiking, running and cooking at home. We are considering a 3-bed 2-bath house, but the market is overpriced, so we are going to wait it out.

With our current cash supply, we are unsure as what to do next. We both have generous Retirement plans (A State Pension for my wife and a 12% of my salary invested by my employer).

With $77,000 cash do we pay down our mortgage or car loan or invest in the market?

-T&L
« Last Edit: August 24, 2020, 02:37:26 PM by bluffrunner »

KungfuRabbit

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Re: Too much cash on hand? Pay down house, car or invest?! $77K to act on.
« Reply #1 on: August 24, 2020, 02:18:40 PM »
You have about 18 months of spending in cash, which is unnecessarily high.  It depends on when you want to buy a house and if you are willing to take on risk.  If you want a house in the next few years and don't want risk of a market downturn in that time, paying down the mortgage is a better return on your cash than sitting in a checking account, and you just get the money back out when you sell the house.  If you are willing to accept some risk investing in the stock market historically has better returns.  Either way, don't sit on the cash.

Also, I googled 2008 sprinter vans because your $50,000 seemed high, there are plenty for sale for way less than that unless they are very low mileage and great condition.  Are you way over-valuing your van, or are you sitting on a low mileage perfect condition $50,000 van that you use on occasion to camp?  I would STRONGLY suggest selling that Van and investing the $50,000 in the stock market, holding on to a depreciating asset that is such a high percentage of your net worth is really REALLY going to hold you back financially (10 years from now that van will be worth closer to $10,000, but the $50,000 invested could be worth $100,000).  If you want something to camp in you can get a WAYYYYYYYYYYYY cheaper pop-up trailer to tow behind your Nissan.  Even if you wanted a second car to stay a 2-car home for when it would be nice you could get a pop-up trailer AND a used car for 1/5 of the price of that van. 

And if you really want a $50,000 vehicle, Tesla's are way more fun than cargo vans - and they have massive advantages for camping since you can safely leave the A/C on overnight :)

ysette9

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Re: Too much cash on hand? Pay down house, car or invest?! $77K to act on.
« Reply #2 on: August 24, 2020, 02:34:15 PM »
This is a useful post to review for these sorts of questions: https://forum.mrmoneymustache.com/investor-alley/investment-order/

The big question is what do you want to do with your financial life? It is hard to create a plan if you don’t know where you want to go.

Do you want to have kids one day? Why do you want a bigger house? What funds are your investments in?

bluffrunner

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Re: Too much cash on hand? Pay down house, car or invest?! $77K to act on.
« Reply #3 on: August 24, 2020, 02:35:28 PM »
Ha, I think I forgot some details about our '08 Dodge Sprinter. We purchased it for $18K and invested about $12K in it to convert it to a full campervan (almost like an RV). We have seen similar ones sold for $45-65K. We just finished it, so we plan to keep it for quite some time :)

The van is paid off and we value it at $50K.

MrThatsDifferent

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Re: Too much cash on hand? Pay down house, car or invest?! $77K to act on.
« Reply #4 on: August 24, 2020, 02:45:18 PM »
Personally, I would:
1. Not consider a bigger house unless kids, don’t have more space than you need (Especially if you’re keeping the sprinter van)
2. Wouldn’t add to the mortgage after considering this: http://www.innovativeadvisors.net/files/10reasonsforMortgage.pdf
3. Check out the investment order for some guidance
4. I’d invest the money in Vanguard index funds
5. Work on goals and objectives. If wanting to work until you collect the pensions, you’ll build up lots of money beforehand. If wanting to FIRE, then you’ll want to accelerate the growth of your money.

bbqbonelesswing

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Re: Too much cash on hand? Pay down house, car or invest?! $77K to act on.
« Reply #5 on: August 24, 2020, 02:54:37 PM »
With $77,000 cash do we pay down our mortgage or car loan or invest in the market?

Invest in the market. Both your mortgage and car loan have relatively low rates compared to what you'd expect to get in the market over time.

zolotiyeruki

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Re: Too much cash on hand? Pay down house, car or invest?! $77K to act on.
« Reply #6 on: August 24, 2020, 07:55:15 PM »
With $77,000 cash do we pay down our mortgage or car loan or invest in the market?

Invest in the market. Both your mortgage and car loan have relatively low rates compared to what you'd expect to get in the market over time.
Agreed.  You're well on your way toward FIRE, and it's important to have funds available to cover your first five years' expenses while you build your Roth ladder.  Stuff that cash into an index fund and forget about it for a while :)

tamuaggie2011

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Re: Too much cash on hand? Pay down house, car or invest?! $77K to act on.
« Reply #7 on: August 25, 2020, 11:45:14 AM »
Quote
2. Wouldn’t add to the mortgage after considering this: http://www.innovativeadvisors.net/files/10reasonsforMortgage.pdf

This article also has some very anti-mustachian qualities that I would be personally against as well. You always want to work to grow your wealth BUT

1. This article references that you will have debt from cars, big TVs, credit card etc. You DO NOT have to have any of this debt and in reality you shouldn't
2. The goal of financial independence is to grow your wealth to a sufficient level to cover all your needs. You (and your spouse) are individuals not a corporation and therefore you do not need to grow your wealth in perpetuity.
3. Taking 1 and 2 into account. You have to set your goal and see how on track you are at reaching that goal. Do you need to invest more to reach your FIRE number at the appropriate time? Then sure only make the minimum payment and invest the extra in index funds. On the other hand, if you are on track to reach your FI goal in 5 years and your FIRE age is 10 years away then there is no reason to just hold extra debt to make a couple extra interest points especially since
4. Index Fund returns are AVERAGES over the long run. Over a 30 year period you will return more but you have to hold those investments/debt for the full time frame. If you sell the investments (for whatever reason) before hand then you haven't realized the reported economic benefit from that study.

MrThatsDifferent

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Re: Too much cash on hand? Pay down house, car or invest?! $77K to act on.
« Reply #8 on: August 25, 2020, 02:51:07 PM »
Quote
2. Wouldn’t add to the mortgage after considering this: http://www.innovativeadvisors.net/files/10reasonsforMortgage.pdf

This article also has some very anti-mustachian qualities that I would be personally against as well. You always want to work to grow your wealth BUT

1. This article references that you will have debt from cars, big TVs, credit card etc. You DO NOT have to have any of this debt and in reality you shouldn't
2. The goal of financial independence is to grow your wealth to a sufficient level to cover all your needs. You (and your spouse) are individuals not a corporation and therefore you do not need to grow your wealth in perpetuity.
3. Taking 1 and 2 into account. You have to set your goal and see how on track you are at reaching that goal. Do you need to invest more to reach your FIRE number at the appropriate time? Then sure only make the minimum payment and invest the extra in index funds. On the other hand, if you are on track to reach your FI goal in 5 years and your FIRE age is 10 years away then there is no reason to just hold extra debt to make a couple extra interest points especially since
4. Index Fund returns are AVERAGES over the long run. Over a 30 year period you will return more but you have to hold those investments/debt for the full time frame. If you sell the investments (for whatever reason) before hand then you haven't realized the reported economic benefit from that study.

1. I’m not sure what you’re reading or how you’re reading the article, when it says this clearly “ Invest the proceeds of your refinancing carefully. Do not spend the money on vacations, furniture, cars, or college. This is your home we’re talking about, so you must invest these assets prudently. If you don’t know how to do that, turn to a professional financial advisor for help.” MMM btw talks about “good” and “bad” debt.
2. What I got out of the article is clear reasoning (whether you follow or not) on how and why people argue that it’s better to keep a mortgage and invest to grow your wealth. It gives you more cash flow to achieve FI quicker—that’s Mustachian. The idea is that your wealth will sustain you for as long as your alive (however long that may be).
3. Again, not sure what you’re arguing here? If your mortgage is 3% or less and the investments return 7-10%, then you’re covering the mortgage and profiting by investing. The idea of mustachian is to,figure out ways to get your little green soldiers to make you more, well, here you go!
4. Missing your point here too. A. The 30 year time frame aligns with the 30 year mortgage. B. No one waits until the end of the 30 years of investing to take out their money, you withdraw 4% each year.
5. I’m not arguing for or against this strategy as I haven’t used it yet. However, it makes sense to me so far.

tamuaggie2011

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Re: Too much cash on hand? Pay down house, car or invest?! $77K to act on.
« Reply #9 on: August 25, 2020, 04:23:37 PM »
1. The specific quote I was referencing is here: "There’s no way you can avoid debt in today’s society. Cars and college – let alone big
screen TV’s — virtually require you to have loans."
2. My point is the goal here is to achieve Financial independence. Once you do that your money will still continue to grow, and as referenced in multiple MMM posts your overall wealth will still frequently grow even in "retirement".  Corporations must always continue to build wealth and appease shareholders so they (almost) always continue to service debt as a tool to build wealth, service cash flow, manage receivables/payables etc etc...
3. I was trying to give an example of a person already more than on track to meet his/her FI goals and how once you then reach that target, there is not a NEED to just hold debt for no reason.
4. The long run returns of index funds average 7-10% approximately whereas a loan (mortgage or otherwise) is a fixed cost at a fixed rate year over year.

I was meaning to merely propose some counter-points because last but not least I guess what this article doesn't account for at all is the individual's "debt tolerance" or emotional effect from having/holding onto debt.


MrThatsDifferent

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Re: Too much cash on hand? Pay down house, car or invest?! $77K to act on.
« Reply #10 on: August 25, 2020, 09:25:40 PM »
1. The specific quote I was referencing is here: "There’s no way you can avoid debt in today’s society. Cars and college – let alone big
screen TV’s — virtually require you to have loans."
2. My point is the goal here is to achieve Financial independence. Once you do that your money will still continue to grow, and as referenced in multiple MMM posts your overall wealth will still frequently grow even in "retirement".  Corporations must always continue to build wealth and appease shareholders so they (almost) always continue to service debt as a tool to build wealth, service cash flow, manage receivables/payables etc etc...
3. I was trying to give an example of a person already more than on track to meet his/her FI goals and how once you then reach that target, there is not a NEED to just hold debt for no reason.
4. The long run returns of index funds average 7-10% approximately whereas a loan (mortgage or otherwise) is a fixed cost at a fixed rate year over year.

I was meaning to merely propose some counter-points because last but not least I guess what this article doesn't account for at all is the individual's "debt tolerance" or emotional effect from having/holding onto debt.

Yes because emotion shouldn’t override rationality and logic when it comes to finances.