Author Topic: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?  (Read 9218 times)

Rockets34Life

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Just a forewarning, I don't need any arguments in this thread about "Why did you pay it off when you should of invested?"  My last thread on just asking this got out of hand and I didn't get the answers I was looking for. 

I'm not going to provide any numbers.  If you were in my shoes, it's just a simple question - What would you do with all that extra $?

dandarc

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #1 on: February 13, 2015, 12:21:01 PM »
Invest it.

Rockets34Life

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #2 on: February 13, 2015, 12:21:35 PM »
Invest it.

Care to elaborate in what you would invest it in?

dandarc

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #3 on: February 13, 2015, 12:23:38 PM »
Are you in the US?  If so:

1.  Top up any tax-advantaged space you might have available.
2.  Taxable account for stocks / bonds, or save it up to buy investment real estate.  Or both.

tyd450

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #4 on: February 13, 2015, 12:24:21 PM »
Invest that shit!

VTSAX

MDM

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #5 on: February 13, 2015, 12:26:34 PM »
Care to elaborate in what you would invest it in?
The best choices available in your tax-advantaged accounts.

Followed by your choice of a target-date retirement fund (e.g. VTTSX), or a total stock market fund (e.g. VTSAX), or something like this in your taxable accounts.

tlars699

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #6 on: February 13, 2015, 12:27:25 PM »
Have you maxed out your 401K or any version of an IRA account?

Do you have kids? If so does your state offer 529 tax deferrment? If so, have you maxed that out yet?

Does your house need a significant improvement within the next 2-3 years(roof? Solar panels? new tankless water heater? etc?)?
If so, have you asked your local credit union for some sort of certificate program?

Have you looked into creating a Vanguard account- or some sort of other financial investment firm? (MMM recommends Vanguard, but you may be able to get a better local deal, or one through your employer- some employers offer discounts or additional fun stuff regarding these depending on your industry...)

Do you have a bike?

Have you really wanted to do something with your money that you have previously held off on?

You're really asking advice for a very subjective subject. There's no real  right or wrong answer here- it all depends on what you want out of your green employees.

Rockets34Life

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #7 on: February 13, 2015, 12:27:52 PM »
Are you in the US?  If so:

1.  Top up any tax-advantaged space you might have available.
2.  Taxable account for stocks / bonds, or save it up to buy investment real estate.  Or both.

Are you in the US?  If so:

1.  Top up any tax-advantaged space you might have available.
2.  Taxable account for stocks / bonds, or save it up to buy investment real estate.  Or both.

Yes, I'm in the US. 

1. So when you say tax-advantaged space, I should invest in a Roth IRA?
2. What kind of taxable accounts should I look into?

ioseftavi

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #8 on: February 13, 2015, 12:30:49 PM »
These replies are all correct.  First, fill up any remaining tax advantaged space.  I think of it like a waterfall:

Emergency fund
     401(k)
          Roth or Traditional IRA
               HSA
                    529 if appropriate to your goals
                         Taxable investment accounts / Real estate

Don't jump to lower levels if you still have space in upper levels.

FarmerPete

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #9 on: February 13, 2015, 12:32:56 PM »
Are you in the US?  If so:

1.  Top up any tax-advantaged space you might have available.
2.  Taxable account for stocks / bonds, or save it up to buy investment real estate.  Or both.

Are you in the US?  If so:

1.  Top up any tax-advantaged space you might have available.
2.  Taxable account for stocks / bonds, or save it up to buy investment real estate.  Or both.

Yes, I'm in the US. 

1. So when you say tax-advantaged space, I should invest in a Roth IRA?
2. What kind of taxable accounts should I look into?

Tax-advantaged space = 401k, IRA, or Roth IRA.
Taxable accounts = Taxed brokerage account with Vanguard, Fidelity, Schwab, etc.

Rockets34Life

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #10 on: February 13, 2015, 12:35:19 PM »
Have you maxed out your 401K or any version of an IRA account?

Yes, I have maxed it my 401K and I'm taking advantage of my company's match.  My wife is doing the same.  I don't have an IRA account.  Who would you recommend?

Quote
Do you have kids? If so does your state offer 529 tax deferrment? If so, have you maxed that out yet?

Yes, I do.  Once the mortgage is paid off on 2/23, I was going to do that.  Who should I go with?  I'm in Texas.

Quote
Does your house need a significant improvement within the next 2-3 years(roof? Solar panels? new tankless water heater? etc?)?
If so, have you asked your local credit union for some sort of certificate program?

Would like to replace our water heater....I think it's going out.  There's some other minor work to be done inside the house.  Outside of the house, we would like to upgrade our fence, get a patio, make some expansions to the house.  But all these are just on the backburner until we have built up some capital (outside of our investing).

I'm not familiar with the certificate program.  Can you explain?

Quote
Have you looked into creating a Vanguard account- or some sort of other financial investment firm? (MMM recommends Vanguard, but you may be able to get a better local deal, or one through your employer- some employers offer discounts or additional fun stuff regarding these depending on your industry...)

I have never thought of investing into Vanguard other than taking advantage of it in my 401K.  How do I do that?

Quote
Do you have a bike?

I don't, but I don't think I can get to work on a bike.....sorry.

Quote
Have you really wanted to do something with your money that you have previously held off on?

There are plenty of things, but on top of our list - take a nice vacation without thinking about how much it's going to put us under.

Quote
You're really asking advice for a very subjective subject. There's no real  right or wrong answer here- it all depends on what you want out of your green employees.

I understand, but I just want to get a feel from other mustachians so I can start my 2nd part of my life (life after no mortgage) and get to enjoy this debt-free life.
« Last Edit: February 13, 2015, 12:37:54 PM by Rockets34Life »

NotJen

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #11 on: February 13, 2015, 12:37:09 PM »
Congrats!  I was/am in your shoes!

I paid off my mortgage in December.  I couldn't wait until 2015 started to implement my new plan, which involves investing the money I used to throw at the mortgage.

First step was maxing out my 401k at work ($18k limit this year).

Second step was to start taxable investing. To do this, I opened a new personal investing account at Vanguard (already had my Roth there).  I include it in my retirement asset allocation, and am buying Vanguard's international index in it.

I will continue maxing my Roth IRA, which I did even while in mortgage-payoff mode.

Gin1984

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #12 on: February 13, 2015, 12:40:30 PM »
Depending on your income level, you should decide between a Roth or a traditional IRA.  The rest is subjective.  My way of doing it is we have a list of "extras" that we want to add to the budget, when we increase our income, we separate it between savings and life style inflation.

MillenialMustache

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #13 on: February 13, 2015, 12:45:47 PM »
We paid off our home a little over a year ago. We have since bought a rental with the money we were throwing at the mortgage.

dandarc

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #14 on: February 13, 2015, 12:51:12 PM »
I'll elaborate by telling you what we actually do:

We have a monthly spending budget.  Invariably, our income exceeds this.  The excess goes in the following priority:

1.  Traditional Retirement Vehicles (wife has 457, I have Solo 401K)
2.  Roth IRAs - note that if our AGI comes in low enough, we'll recharacterize what we can deduct to traditional.  New money is going into Vanguard Life-Strategy Growth
3.  Extra Mortgage Payments
4.  Taxable Account (this doesn't yet exist, because we still have a mortgage).

So once we pay the Mortgage off, basically cross 3 off the list.  In the taxable account, we'll buy stock funds at Vanguard (VTSAX in all likelyhood), and possibly some municipal bonds (you know, if we want to have bonds in this account).

tlars699

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #15 on: February 13, 2015, 12:55:42 PM »
Have you maxed out your 401K or any version of an IRA account?

Yes, I have maxed it my 401K and I'm taking advantage of my company's match.  My wife is doing the same.  I don't have an IRA account.  Who would you recommend?

Quote
Do you have kids? If so does your state offer 529 tax deferrment? If so, have you maxed that out yet?

Yes, I do.  Once the mortgage is paid off on 2/23, I was going to do that.  Who should I go with?  I'm in Texas.

Quote
Does your house need a significant improvement within the next 2-3 years(roof? Solar panels? new tankless water heater? etc?)?
If so, have you asked your local credit union for some sort of certificate program?

Would like to replace our water heater....I think it's going out.  There's some other minor work to be done inside the house.  Outside of the house, we would like to upgrade our fence, get a patio, make some expansions to the house.  But all these are just on the backburner until we have built up some capital (outside of our investing).

I'm not familiar with the certificate program.  Can you explain?

Quote
Have you looked into creating a Vanguard account- or some sort of other financial investment firm? (MMM recommends Vanguard, but you may be able to get a better local deal, or one through your employer- some employers offer discounts or additional fun stuff regarding these depending on your industry...)

I have never thought of investing into Vanguard other than taking advantage of it in my 401K.  How do I do that?

Quote
Do you have a bike?

I don't, but I don't think I can get to work on a bike.....sorry.

Quote
Have you really wanted to do something with your money that you have previously held off on?

There are plenty of things, but on top of our list - take a nice vacation without thinking about how much it's going to put us under.

Quote
You're really asking advice for a very subjective subject. There's no real  right or wrong answer here- it all depends on what you want out of your green employees.

I understand, but I just want to get a feel from other mustachians so I can start my 2nd part of my life (life after no mortgage) and get to enjoy this debt-free life.
[/quote]

1. I have no idea who offers the best IRA accounts. My credit union offers what I would consider a good deal, but you should probably check out your local one, and any of the big banking institutions in your area to see who offers the smallest fees and biggest Return On Investment.
2.No idea- I'm in WI and we have tax deferred 529's available last I knew, though Walker may be on the guerilla warpath with those too... But GOOGLE should be your friend in this regard.
3. A certificate program is a short term method of investing- commonly called CD's. My credit union offers terms of 6 mos up to 36 months- the longer you stash the cash the higher percentage back you can earn, much like Vanguard. BUT- CD's, from what I understand, are much easier to liquidate, and obviously have shorter terms available. This may assist you when trying to build a housing/repair stash.
4. Visit the Vanguard site and check it out for personal investing.
5. You don't need to bike to work to make a bike a worth while investment. Even going to the park or the store once in a while will help ease your car/gas bill. Also, you'd be outside, and exercising- I hear Texas has decent weather this time of year... wouldn't that be enough reason to get one?
6. You don't need to spend lots of money to vacation well. You can go camping with family(Badlands in SD- you Need to see the stars at night- even if just once), or you can check out hotel rooms online to a larger city(not the biggest like Dallas or Houston, but have you ever seen the Alamo? Or gone to a barbeque competition?). I prefer hotwire, in conjunction with google maps to find the best stuff near where I want to be(usually museums/historical sites). Start small here, and try to maximize your enjoyment per dollar. Even a weekend trip can be very satisfying to wanderlust.

7. That's cool- brainstorming is always fun!

Gone Fishing

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #16 on: February 13, 2015, 12:59:25 PM »
What is your total income?  How do you file your taxes (Single, joint, etc)? 

Read ROTH vs Traditional in my signature line below:

wtjbatman

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #17 on: February 13, 2015, 01:22:55 PM »
This back and forth Q and A is why you should have just posted numbers (case study style) in your original post, instead of saying you wouldn't post anything beyond "What should I do?".

Rockets34Life

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #18 on: February 13, 2015, 02:22:05 PM »
I'll elaborate by telling you what we actually do:

We have a monthly spending budget.  Invariably, our income exceeds this.  The excess goes in the following priority:

1.  Traditional Retirement Vehicles (wife has 457, I have Solo 401K)
2.  Roth IRAs - note that if our AGI comes in low enough, we'll recharacterize what we can deduct to traditional.  New money is going into Vanguard Life-Strategy Growth
3.  Extra Mortgage Payments
4.  Taxable Account (this doesn't yet exist, because we still have a mortgage).

So once we pay the Mortgage off, basically cross 3 off the list.  In the taxable account, we'll buy stock funds at Vanguard (VTSAX in all likelyhood), and possibly some municipal bonds (you know, if we want to have bonds in this account).

Thanks dandarc for the explanation.

1. I have no idea who offers the best IRA accounts. My credit union offers what I would consider a good deal, but you should probably check out your local one, and any of the big banking institutions in your area to see who offers the smallest fees and biggest Return On Investment.
2.No idea- I'm in WI and we have tax deferred 529's available last I knew, though Walker may be on the guerilla warpath with those too... But GOOGLE should be your friend in this regard.
3. A certificate program is a short term method of investing- commonly called CD's. My credit union offers terms of 6 mos up to 36 months- the longer you stash the cash the higher percentage back you can earn, much like Vanguard. BUT- CD's, from what I understand, are much easier to liquidate, and obviously have shorter terms available. This may assist you when trying to build a housing/repair stash.
4. Visit the Vanguard site and check it out for personal investing.
5. You don't need to bike to work to make a bike a worth while investment. Even going to the park or the store once in a while will help ease your car/gas bill. Also, you'd be outside, and exercising- I hear Texas has decent weather this time of year... wouldn't that be enough reason to get one?
6. You don't need to spend lots of money to vacation well. You can go camping with family(Badlands in SD- you Need to see the stars at night- even if just once), or you can check out hotel rooms online to a larger city(not the biggest like Dallas or Houston, but have you ever seen the Alamo? Or gone to a barbeque competition?). I prefer hotwire, in conjunction with google maps to find the best stuff near where I want to be(usually museums/historical sites). Start small here, and try to maximize your enjoyment per dollar. Even a weekend trip can be very satisfying to wanderlust.

7. That's cool- brainstorming is always fun!

Thanks tlars699 for the info!

What is your total income?  How do you file your taxes (Single, joint, etc)? 

Read ROTH vs Traditional in my signature line below:

Our total gross income for 2014 is $113K.  We filed our taxes married jointly.

This back and forth Q and A is why you should have just posted numbers (case study style) in your original post, instead of saying you wouldn't post anything beyond "What should I do?".


Read my OP.  I did that before and it became a debate on why am I paying it off when I could invest. 

Didn't want to go down that road again and just wanted a general overview on what mustachians would do with the extra $.

Glad the thread is going this way.

Cwadda

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #19 on: February 13, 2015, 02:34:58 PM »
Quote
Emergency fund
     401(k)
          Roth or Traditional IRA
               HSA
                    529 if appropriate to your goals
                         Taxable investment accounts / Real estate

I think this is a nice short and sweet way of putting it.

Gone Fishing

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #20 on: February 13, 2015, 02:41:04 PM »
Just wait until you see your tax bill shrink once you are maxing out the 401(k)s and Traditional IRAs!

rpr

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #21 on: February 13, 2015, 03:00:24 PM »
Here's my guess assuming you and your wife make 113K gross and are maxing two 401Ks and 2 Traditional IRAs. The Federal  income taxes are based on assuming that you are making the max 401K contributions. I just took a guess at the state income taxes.

Gross Income: 113K
FICA/Payroll Taxes: 8K
Maxing 2 401Ks: 36K
Maxing two Trad IRAs: 11K
Fed taxes: 5K
State Taxes: 3K
Other Pre Tax deductions: 3K (medical insurance etc.)

Net Take home pay: 47K

How much are your expenses? Let's assume 35K.

Then available savings for taxable accounts = 12K

Personally I would just invest in a broad based index fund such as Vanguard Total Stock (domestic) or Vanguard Total International market funds. 

jms493

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #22 on: February 13, 2015, 04:39:57 PM »
Congrats!!!


fartface

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #23 on: February 13, 2015, 06:16:43 PM »
These replies are all correct.  First, fill up any remaining tax advantaged space.  I think of it like a waterfall:

Emergency fund
     401(k)
          Roth or Traditional IRA
               HSA
                    529 if appropriate to your goals
                         Taxable investment accounts / Real estate

Don't jump to lower levels if you still have space in upper levels.

Our mortgage will be paid off in two years. I agree with this guy ^^^^ above. My husband is already FIRE'd so all he does is contribute the max to his ROTH. I contribute $17,400 to my 403b + max out my ROTH. We contribute the maximum (state) deduction to our daughter's 529 plan @$3000.

Anything left over after retirement and college funds goes into my Vanguard brokerage.

When my $1600 mortgage payment goes "poof" in two years, I'll contribute $1600/month additional to the brokerage account, or consider opening a SEP IRA for my FIRE'd husband's very small micro-business.

Cheddar Stacker

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #24 on: February 13, 2015, 09:35:48 PM »
You can use the extra cash to pay off my mortgage. No? Ok then, max 401k and T.iras,  and you should land in the 15% bracket.

Congrats on the accomplishment.

Catbert

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #25 on: February 14, 2015, 10:52:47 AM »
You've gotten good advice on what to do with the money.  Before you get on with the serious stuff, take a month or two of mortgage payments and do something you've been wanting to do for a while...nice vacation, unnecessary but wanted upgrade to your house, or whatever you want that won't be an on-going expense. 

Rockets34Life

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #26 on: February 20, 2015, 12:27:12 PM »
Update - Well, I kind of jumped the gun and decided to pay it off today!  So as of 1:25pm CST, my family and I are MORTGAGE FREE!!!

YIPPEE KI YA MOTHA****A! :)

marty998

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #27 on: February 20, 2015, 12:58:00 PM »
Good stuff, hope to join you in 8 months time.

It's ok, no need to self censor with the ****


slugline

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #28 on: February 20, 2015, 01:23:51 PM »
Lease payments on a luxury SUV!

OK, I'm kidding. But it looks odd pursue paying off a mortgage aggressively with no idea of what to do next. Are you anywhere close to FI?

Rockets34Life

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #29 on: February 23, 2015, 10:28:17 AM »
Lease payments on a luxury SUV!

OK, I'm kidding. But it looks odd pursue paying off a mortgage aggressively with no idea of what to do next. Are you anywhere close to FI?

Unfortunately, no.  It's kind of tough with 2 small ones, but with this extra $ coming in, we're going to do our best to put away $ to pad the 401K or start a Roth IRA.

RedefinedHappiness

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #30 on: March 10, 2015, 07:24:07 AM »
 Once you pay off your mortgage, any logistics others should be aware of?  For example, to I need to contact county regarding taxes?  Budget methods for escrow? Tricks for tax saving (pay two years in one year to double up on taxes?

dandarc

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #31 on: March 11, 2015, 08:35:08 AM »
Once you pay off your mortgage, any logistics others should be aware of?  For example, to I need to contact county regarding taxes?  Budget methods for escrow? Tricks for tax saving (pay two years in one year to double up on taxes?
We have a savings account for taxes / insurance - when we pay the house off, we'll figure how much those ought to be, divide by 12 and put that away each month.

This is highly location specific, but where I'm at, you get a 1% discount on your property taxes for each month you pay early, up to 4 months.  So if you pay in November, you get 4% off.

Cheddar Stacker

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #32 on: March 11, 2015, 11:11:15 AM »
Once you pay off your mortgage, any logistics others should be aware of?  For example, to I need to contact county regarding taxes?  Budget methods for escrow? Tricks for tax saving (pay two years in one year to double up on taxes?
We have a savings account for taxes / insurance - when we pay the house off, we'll figure how much those ought to be, divide by 12 and put that away each month.

This is highly location specific, but where I'm at, you get a 1% discount on your property taxes for each month you pay early, up to 4 months.  So if you pay in November, you get 4% off.

We have a mortgage but no escrow after I requested it closed. We pay insurance in May and tax in December. No monthly allocation here, just need to make sure we have enough cash on hand to pay the bils those months.

dandarc

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #33 on: March 11, 2015, 11:17:00 AM »
Once you pay off your mortgage, any logistics others should be aware of?  For example, to I need to contact county regarding taxes?  Budget methods for escrow? Tricks for tax saving (pay two years in one year to double up on taxes?
We have a savings account for taxes / insurance - when we pay the house off, we'll figure how much those ought to be, divide by 12 and put that away each month.

This is highly location specific, but where I'm at, you get a 1% discount on your property taxes for each month you pay early, up to 4 months.  So if you pay in November, you get 4% off.

We have a mortgage but no escrow after I requested it closed. We pay insurance in May and tax in December. No monthly allocation here, just need to make sure we have enough cash on hand to pay the bils those months.
That is a more efficient way to do it - we really don't need to escrow either.  Maybe as the payoff approaches, I'll talk to wife - $900 (need to shop this) in May or June for insurance, then $1600ish in November for taxes is doable without any real planning on our income.  We already have the account (with 0 in it) because for about 6 months, we were living in a paid-off condo, before we moved to reduce our commutes.

rmendpara

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Re: 2/23/15 - Mortgage will be paid off! What do I do with the extra $?
« Reply #34 on: March 11, 2015, 01:03:10 PM »
Saw above that you'd like to add more to investments.

Overall, many ways to accomplish this. The big addition to monthly cash flow should make many things possible.

Someone above posted this hierarchy. I may move some things around, but it's mostly on par with the general advice.

"Emergency fund
     401(k)
          Roth or Traditional IRA
               HSA
                    529 if appropriate to your goals
                         Taxable investment accounts / Real estate"

I don't know how much money we're talking about, so I'll just assume that you could add to the 401k and based on your 113k income, I think a Roth as well for you both. If you still have money left over, you can definitely keep going down the list. YOu can open accounts directly with Vanguard/Fidelity/etc and get easy access to directly invest in IRAs, 529 plans, and even an aftertax brokerage account.

What you do and how aggressively you invest depends largely on what your financial goals are and what you need to do to get there in a time frame that is reasonable for you. The remainder can be spent on luxuries or charity.

Congratulations