Debt free, now what?

[MotherFier]

Hello my people! New to FIRE movement.
We just paid off a massive student loan ($148K!!!) and have extra money left each month.
Now that we are debt free except for the house we need a solid strategy on what to do with the money.

This is what we came up with, please advise if we are on the right track.

Monthly after tax income: $13K (expecting more growth for both of us)
Monthly expenses very close to $6K (will be less once we have no daycare expenses)
Savings: 401K: ~$61K (awful, I know), around $4K in 529. Around $9K in cash.

We can alocate $7000 extra each month.
Step 1.
Maximize our 401K, Roth, HSA contributions ($57K for both of us: $19K ea for 401K, $6K ea for Roth, $7K family HSA husband only).
Step 2.
Once step 1 is maxed, either pay off our mortgage earlier (current loan $352K at 4.25%, monthly payments: $2,400) or invest with Vanguard (our 401Ks are with Fidelity, allocating 100% with SP 500)

We are old. 39 and 43.
Thank ya'll!

[Cromacster]

Step 1 is good, do that.

Step 2 becomes a bit more controversial, but the financially optimum strategy would be to invest it rather than pay down your mortgage.  Evaluate this for your own situation.

[Philociraptor]

Looks good to me! That's a straight bitchin' amount of extra cash per month! As far as paying down mortgage or investing, I'd lean towards investing in a taxable brokerage. That being said, we're in a 5/1 now and will need to refinance next year to keep from the rate skyrocketing, we're looking into 10-year fixed so that it'll coincide with our FIRE date. Welcome to the forum! *waves from Grand Prairie*

[MotherFier]

Yay! Thank you!! We did stupid stuff with money in the past, now it's time for some fixin'. :)

Fatherfier is against paying off mortgage earlier and wants to invest the leftovers with Vanguard (after maxing 401Ks, etc). Im leaning towards mortgage repayment (even though the math says otherwise). Thanks for the advice on getting our mortgage repayment date coincide with the FIRE date. As our income grows (yes, you bet we are planning on that!), we will definately do this. Planning to FIRE (at least one of us) in 7-10 years. Whee-ha!

[SwordGuy]

Yay! Thank you!! We did stupid stuff with money in the past, now it's time for some fixin'. :)

Paying off $148k in student loan debt shows you already figured that out some time back.  Congrats.

Fatherfier is against paying off mortgage earlier and wants to invest the leftovers with Vanguard (after maxing 401Ks, etc). Im leaning towards mortgage repayment (even though the math says otherwise). Thanks for the advice on getting our mortgage repayment date coincide with the FIRE date. As our income grows (yes, you bet we are planning on that!), we will definately do this. Planning to FIRE (at least one of us) in 7-10 years. Whee-ha!

Savings and investing is good.

Paying off a mortgage is good.

So, how do you choose between two things that are good?

One way is to look at things that might go wrong and see (a) what you could do to fix it (if possible) and (b) whether having more investments/savings or a lower debt on the mortgage would help more?

So, for example, one of you gets injured/sick and can't work.   Maybe can't watch the kids either so daycare is still needed.

And the other one of you loses your job because you're so focused on your spouse and kids, plus some bad luck with the economy.   Maybe jobs in your area become hard to find because of the economic cycle.


Which will help you more?


Cash savings and stock investments?  Or owing 25% less on your mortgage than you otherwise would (but still having a mortgage)?


The answer is:   cash savings and investments to tide you thru until things get better.

Owing less on your home (until you owe nothing at all and the mortgage is gone) just makes it easier for the bank not to lose money when they foreclose on your home.  It does ABSOLUTELY NOTHING to help you at all.

So, if you're leaning towards paying extra on the mortgage because it someone feels safer, your feelings are misleading you.
You only get extra safety after the mortgage is completely gone, until then it's actually less safe to pay extra a bit at a time.
If your mortgage interest rate was really high (my first was 9 3/8ths%, a friend's first was 18%), that would be different.

[MotherFier]

Hi SwordGuy!

Owing less on your home (until you owe nothing at all and the mortgage is gone) just makes it easier for the bank not to lose money when they foreclose on your home.  It does ABSOLUTELY NOTHING to help you at all.

So, if you're leaning towards paying extra on the mortgage because it someone feels safer, your feelings are misleading you.
You only get extra safety after the mortgage is completely gone, until then it's actually less safe to pay extra a bit at a time.
If your mortgage interest rate was really high (my first was 9 3/8ths%, a friend's first was 18%), that would be different.

Thank you for your wisdom, this is exactly why i posted this question here. Needed to clear my head, and think of this situation more rationally, rather than as a scared woman terrified that her husband will die one day and leave her to raise little Fi'ers by herself (though my income will take care of all our expenses, not much will be left after).

Your reply also got me thinking...if we are planning on FIRE'ing in 7-10 years, why would we keep the house if our ultimate FIRE goal is to travel the world?

So here you go...now I have a more clear plan (and head). Thank you, thank you!

[LifeHappens]

Thank you for your wisdom, this is exactly why i posted this question here. Needed to clear my head, and think of this situation more rationally, rather than as a scared woman terrified that her husband will die one day and leave her to raise little Fi'ers by herself (though my income will take care of all our expenses, not much will be left after).

Do you have life insurance on both you and your husband? If you have dependent children and are not FI yet, term life is a must.

[MotherFier]

Do you have life insurance on both you and your husband? If you have dependent children and are not FI yet, term life is a must.

yes, both of us through work. Also, we just got a simple will drafted with the local lawyer last week. cost $400.

[Tracyl-5]

Seeing the title of your post brought me back...  Nearly 10 years ago, I Googled "Debt free, now what" and that started me down the path!  I found some bloggers, and I was hooked.  I maxed my 401k, then my Roth, and then started a brokerage account... And I convinced my husband to do the same.  (No mortgage here)  We just crossed $1M in our investment accounts last month!  Not exactly sure what we started from 10 years ago, but best guess is $100K.  It's amazing how time flies and money accumulates!

You've got a great plan!  And with how much you have in extra cash flow each month, it will add up quickly.  Best of luck!

[MotherFier]

Seeing the title of your post brought me back...  Nearly 10 years ago, I Googled "Debt free, now what" and that started me down the path!  I found some bloggers, and I was hooked.  I maxed my 401k, then my Roth, and then started a brokerage account... And I convinced my husband to do the same.  (No mortgage here)  We just crossed $1M in our investment accounts last month!  Not exactly sure what we started from 10 years ago, but best guess is $100K.  It's amazing how time flies and money accumulates!

You've got a great plan!  And with how much you have in extra cash flow each month, it will add up quickly.  Best of luck!

OMG Tracy I love you!!!
Thank you, thank you for your kind words of encouragement! We could have totally flushed our awesome incomes down the toilet if it wasn't for MMM. Congrats on $1M, WOW! I cannot imagine how this feels. Thank you again, for taking your time to write this. Hugs from Texas.

[meandmyfamily]

Maybe a comprise  like 75% to investments and 25% to pay down the house or maybe have the goal of paying down the house by FI time?

[Tracyl-5]

OMG Tracy I love you!!!
Thank you, thank you for your kind words of encouragement! We could have totally flushed our awesome incomes down the toilet if it wasn't for MMM. Congrats on $1M, WOW! I cannot imagine how this feels. Thank you again, for taking your time to write this. Hugs from Texas.

*blushes*
I literally giggled out loud at that!  Happy to offer you encouragement, it's an exiting thing working toward FI!  Be prepared, there will be some times when you feel like you're just slogging along, but it will work out if you stay the course.  If you haven't read https://jlcollinsnh.com/stock-series/, I highly recommend it.  Helps a lot to get your mindset right so you're prepared for the market drops that will inevitably happen. 

$1M is a strange thing... it feels like a crazy amount, but it's also just a tease because we're not to our FIRE number yet.  I am 44, my husband is 52, I'm hoping we can be there in 3 years-ish.  But for now, I have to keep reminding myself, that yes, I DO still have to go to work.  Ha!  Sending you much Aloha from Hawaii!

[Rosy]

Yay! Thank you!! We did stupid stuff with money in the past, now it's time for some fixin'. :)

Paying off $148k in student loan debt shows you already figured that out some time back.  Congrats.

Fatherfier is against paying off mortgage earlier and wants to invest the leftovers with Vanguard (after maxing 401Ks, etc). Im leaning towards mortgage repayment (even though the math says otherwise). Thanks for the advice on getting our mortgage repayment date coincide with the FIRE date. As our income grows (yes, you bet we are planning on that!), we will definately do this. Planning to FIRE (at least one of us) in 7-10 years. Whee-ha!

Savings and investing is good.

Paying off a mortgage is good.

So, how do you choose between two things that are good?

One way is to look at things that might go wrong and see (a) what you could do to fix it (if possible) and (b) whether having more investments/savings or a lower debt on the mortgage would help more?

So, for example, one of you gets injured/sick and can't work.   Maybe can't watch the kids either so daycare is still needed.

And the other one of you loses your job because you're so focused on your spouse and kids, plus some bad luck with the economy.   Maybe jobs in your area become hard to find because of the economic cycle.


Which will help you more?


Cash savings and stock investments?  Or owing 25% less on your mortgage than you otherwise would (but still having a mortgage)?


The answer is:   cash savings and investments to tide you thru until things get better.

Owing less on your home (until you owe nothing at all and the mortgage is gone) just makes it easier for the bank not to lose money when they foreclose on your home.  It does ABSOLUTELY NOTHING to help you at all.

So, if you're leaning towards paying extra on the mortgage because it someone feels safer, your feelings are misleading you.
You only get extra safety after the mortgage is completely gone, until then it's actually less safe to pay extra a bit at a time.
If your mortgage interest rate was really high (my first was 9 3/8ths%, a friend's first was 18%), that would be different.

@SwordGuy  this is the best explanation I've ever seen.

I may just apply that thought process to my remaining car loan that I was thinking of paying off sooner. Besides, cars depreciate.:( what was I thinking.
My car loan is 3.49% interest and my CD is 3.25% interest - car loan is paid off in April 2020 and the CD in Aug of 2020.
I think I'll just leave the car loan and send the extra money to the CD instead - amirite?

MotherFier - congrats on being debt free. Looks like you've got a plan now.
I hear you on the home, my first thought is always, "but I need a roof over my head". One that no one can take from me and that is preferably all paid off.
However, Sword Guy's explanation made so much sense that I am converted.

If you have cash and investments then you are mobile and agile, you can move if you have to.
Money in a home is sunk in a sense, besides, as you make your regular mortgage payments it will eventually be paid off anyway even if the renter ends up paying your mortgage.

[MotherFier]

OMG Tracy I love you!!!
Thank you, thank you for your kind words of encouragement! We could have totally flushed our awesome incomes down the toilet if it wasn't for MMM. Congrats on $1M, WOW! I cannot imagine how this feels. Thank you again, for taking your time to write this. Hugs from Texas.

*blushes*
I literally giggled out loud at that!  Happy to offer you encouragement, it's an exiting thing working toward FI!  Be prepared, there will be some times when you feel like you're just slogging along, but it will work out if you stay the course.  If you haven't read https://jlcollinsnh.com/stock-series/, I highly recommend it.  Helps a lot to get your mindset right so you're prepared for the market drops that will inevitably happen. 

$1M is a strange thing... it feels like a crazy amount, but it's also just a tease because we're not to our FIRE number yet.  I am 44, my husband is 52, I'm hoping we can be there in 3 years-ish.  But for now, I have to keep reminding myself, that yes, I DO still have to go to work.  Ha!  Sending you much Aloha from Hawaii!

Awww..thank you! I LOVE JL COLLINS! I WOULD ADOPT HIM AS MY FATHER IF I COULD.
Thank you for the link! :)
I am aware the path to FIRE isn't rosy, but I feel privileged to be in the situation I am, even without massive savings. Thank you again, cannot wait to be in your shoes soon! :)

[freeatlast]

Congrats on your awesome accomplishment!!!! I'm 50 and FIREd and DH is 48 and still working. Our house is paid off.

I worked really hard to pay off our house before I FIREd. I did this despite having a very low interest rate of 3.25% I know that the math doesn't work on that front given investment returns, but psychologically, I just felt that I could never FIRE with any kind of debt, however "good," hanging over my head.  I felt it would not be responsible and not fair to my spouse.

That said, we have no plans to move because we love where we live. We want to do some limited travel, but we are not the travel the world in a van types! We like to nest and have a place to call home.

So I would just say that emotions and psychology matter. Sometimes, you just have to do what feels right!

Good luck on your continuing journey!!!!!

[RedwoodDreams]

Hi SwordGuy!

Owing less on your home (until you owe nothing at all and the mortgage is gone) just makes it easier for the bank not to lose money when they foreclose on your home.  It does ABSOLUTELY NOTHING to help you at all.

So, if you're leaning towards paying extra on the mortgage because it someone feels safer, your feelings are misleading you.
You only get extra safety after the mortgage is completely gone, until then it's actually less safe to pay extra a bit at a time.
If your mortgage interest rate was really high (my first was 9 3/8ths%, a friend's first was 18%), that would be different.

Thank you for your wisdom, this is exactly why i posted this question here. Needed to clear my head, and think of this situation more rationally, rather than as a scared woman terrified that her husband will die one day and leave her to raise little Fi'ers by herself (though my income will take care of all our expenses, not much will be left after).

Your reply also got me thinking...if we are planning on FIRE'ing in 7-10 years, why would we keep the house if our ultimate FIRE goal is to travel the world?

So here you go...now I have a more clear plan (and head). Thank you, thank you!

MotherFier, do you and your husband have accounts at ssa.gov? If you create one, you can log in and see your current Social Security estimate, and to allay your fears about loss of a spouse, you can also see the dependent benefits that your children would receive until they turn 18 if they lost a parent. I learned about this only when I became eligible for SSDI, and then I was pleasantly surprised to learn that that qualified my child for a nice monthly dependent benefit until he turns 18. I think it would have given me peace of mind to have known this all along. Between that and your term life insurance, you all would be just fine.  Best of luck!

[freedomfightergal]

Yay! Thank you!! We did stupid stuff with money in the past, now it's time for some fixin'. :)

Paying off $148k in student loan debt shows you already figured that out some time back.  Congrats.

Fatherfier is against paying off mortgage earlier and wants to invest the leftovers with Vanguard (after maxing 401Ks, etc). Im leaning towards mortgage repayment (even though the math says otherwise). Thanks for the advice on getting our mortgage repayment date coincide with the FIRE date. As our income grows (yes, you bet we are planning on that!), we will definately do this. Planning to FIRE (at least one of us) in 7-10 years. Whee-ha!

Savings and investing is good.

Paying off a mortgage is good.

So, how do you choose between two things that are good?

One way is to look at things that might go wrong and see (a) what you could do to fix it (if possible) and (b) whether having more investments/savings or a lower debt on the mortgage would help more?

So, for example, one of you gets injured/sick and can't work.   Maybe can't watch the kids either so daycare is still needed.

And the other one of you loses your job because you're so focused on your spouse and kids, plus some bad luck with the economy.   Maybe jobs in your area become hard to find because of the economic cycle.


Which will help you more?


Cash savings and stock investments?  Or owing 25% less on your mortgage than you otherwise would (but still having a mortgage)?


The answer is:   cash savings and investments to tide you thru until things get better.

Owing less on your home (until you owe nothing at all and the mortgage is gone) just makes it easier for the bank not to lose money when they foreclose on your home.  It does ABSOLUTELY NOTHING to help you at all.

So, if you're leaning towards paying extra on the mortgage because it someone feels safer, your feelings are misleading you.
You only get extra safety after the mortgage is completely gone, until then it's actually less safe to pay extra a bit at a time.
If your mortgage interest rate was really high (my first was 9 3/8ths%, a friend's first was 18%), that would be different.

I love this explanation!   So true.  Years ago I converted a 30 year mortgage to a 15 year to get a 1% savings and guaranteed savings, but then when we lost jobs, the bank wouldn't allow us to convert it back and it took a YEAR to sell.  It was a very close call to foreclosure.   I am all for having it invested now and can pull the cash if necessary, and kind of liking a Bond set up as a sinking pay house of in full one day maybe. 

[Brother Esau]

Yay! Thank you!! We did stupid stuff with money in the past, now it's time for some fixin'. :)

Paying off $148k in student loan debt shows you already figured that out some time back.  Congrats.

Fatherfier is against paying off mortgage earlier and wants to invest the leftovers with Vanguard (after maxing 401Ks, etc). Im leaning towards mortgage repayment (even though the math says otherwise). Thanks for the advice on getting our mortgage repayment date coincide with the FIRE date. As our income grows (yes, you bet we are planning on that!), we will definately do this. Planning to FIRE (at least one of us) in 7-10 years. Whee-ha!

Savings and investing is good.

Paying off a mortgage is good.

So, how do you choose between two things that are good?

One way is to look at things that might go wrong and see (a) what you could do to fix it (if possible) and (b) whether having more investments/savings or a lower debt on the mortgage would help more?

So, for example, one of you gets injured/sick and can't work.   Maybe can't watch the kids either so daycare is still needed.

And the other one of you loses your job because you're so focused on your spouse and kids, plus some bad luck with the economy.   Maybe jobs in your area become hard to find because of the economic cycle.


Which will help you more?


Cash savings and stock investments?  Or owing 25% less on your mortgage than you otherwise would (but still having a mortgage)?


The answer is:   cash savings and investments to tide you thru until things get better.

Owing less on your home (until you owe nothing at all and the mortgage is gone) just makes it easier for the bank not to lose money when they foreclose on your home.  It does ABSOLUTELY NOTHING to help you at all.

So, if you're leaning towards paying extra on the mortgage because it someone feels safer, your feelings are misleading you.
You only get extra safety after the mortgage is completely gone, until then it's actually less safe to pay extra a bit at a time.
If your mortgage interest rate was really high (my first was 9 3/8ths%, a friend's first was 18%), that would be different.

I love this explanation!   So true.  Years ago I converted a 30 year mortgage to a 15 year to get a 1% savings and guaranteed savings, but then when we lost jobs, the bank wouldn't allow us to convert it back and it took a YEAR to sell.  It was a very close call to foreclosure.   I am all for having it invested now and can pull the cash if necessary, and kind of liking a Bond set up as a sinking pay house of in full one day maybe.

B42 would be so proud!