Author Topic: Advice for bonds/Roth/debt  (Read 2720 times)

kc_justin

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Advice for bonds/Roth/debt
« on: December 20, 2013, 03:30:59 PM »
Hi Everyone - just want to start off by saying "hi" and that this is the first time I've ever posted anything in any forum, so forgive any breaches of etiquette.

Basically, I'm looking for some advice on what to do with some savings bonds and/or my emergency fund, and how I should start allocating some extra cash.  Before asking the actual question(s), let me give you all the rundown:

I'm currently 29 yrs old (wish I had discovered the Mustachian way earlier than I did, but better now than never).
My savings are as follows:
401k: ~$27,000 (currently contributing 9% of salary + 3% employer match)
Newly opened Vanguard Roth: ~$1,300 their "Target Retirement 2050 Fund" - started w/ this because of it's $1,000 buy-in price
Savings: 0.94% CD $9,500 (maturing 7/1/2014), 1.33% CD $5,150 (maturing 4/29/2015), $1,000 in savings account
Individual Savings Bonds: ~$7,400 in EE bonds, ~$9,600 in I bonds

My debts are as follows:
Student Loans: ~$10,400 w/ interest rates between 2.5% and 6.5%
Car Loan: ~$3,500 at 2.1% <-----very anti-mustache, I know
Mortgage: ~$73,000 at 5.125% <-----getting ready to sell due to a work relocation.  House was bought for $98,000, should be able to sell for about $120,000

So, I had a few ideas but was curious to here what other like-minded people might think.
Here's my thoughts:

- Keep the bonds as my new emergency fund (this makes the $$ more difficult to get to, which truly makes it an emergency fund and allows me to invest pretty much totally in stocks since I already have this conservative 'stache)
- Since the CD's aren't doing a whole lot for me, cash them both out (will lose about $20 interest between both of them). 
- Use the $$ from the CD's to max out my 2013 and 2014 Roth contributions, and pay off ~$4,400 in my student/car loans
    - this leaves about $9,500 in debt - which I could pay off in about 8 months

So, that's basically what I was thinking - just seemed silly to have the cash sitting around doing nothing.
Thanks in advance for your help!  And happy holidays!

Thegoblinchief

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Re: Advice for bonds/Roth/debt
« Reply #1 on: December 20, 2013, 03:40:59 PM »
Most of the advice I've seen would ditch the bonds altogether and go all stocks (or something like real estate) since you're in the ACCUMULATION phase. So what if things go down for a bit, you want the biggest possible LONG TERM upside at this point.

Cash on hand is about risk tolerance. Some people (like me) stick with the $1,000 emergency fund. Others plan a 3-6 month emergency fund. How stable is your job? What's your positive monthly cash flow?

Eric

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Re: Advice for bonds/Roth/debt
« Reply #2 on: December 20, 2013, 03:59:55 PM »
- Keep the bonds as my new emergency fund (this makes the $$ more difficult to get to, which truly makes it an emergency fund and allows me to invest pretty much totally in stocks since I already have this conservative 'stache)
- Since the CD's aren't doing a whole lot for me, cash them both out (will lose about $20 interest between both of them). 
- Use the $$ from the CD's to max out my 2013 and 2014 Roth contributions, and pay off ~$4,400 in my student/car loans
    - this leaves about $9,500 in debt - which I could pay off in about 8 months

I like it.  I think this is definitely on the right track.  There's really no point to having all that money tied up in CDs earning 1% while you're paying much more than 1% on your debts.  I'd agree you should get out of those and get that money doing something as soon as you can.

Welcome!

Another Reader

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Re: Advice for bonds/Roth/debt
« Reply #3 on: December 20, 2013, 04:00:35 PM »
What will you use for moving expenses?  How will you pay rent while your house is being sold?  What happens if the house does not sell quickly?

If you weren't moving, I might agree with your plan.  Given the unknowns of the relocation, in your shoes, I would hold on to the CD's until the move is complete.  Try to squeeze out as much of the 2013 Roth IRA contribution from cash flow as you can, and maybe liquidate the CD with the lowest penalty to fund the 2013 Roth fully.  You have until April 2015 to fund the 2014 contribution.

kc_justin

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Re: Advice for bonds/Roth/debt
« Reply #4 on: December 21, 2013, 08:11:21 PM »
Thanks for the replies! This is a pretty awesome community - it's nice being able to talk money with some like-minded people.

What will you use for moving expenses?  How will you pay rent while your house is being sold?  What happens if the house does not sell quickly?

Good questions, since I neglected to include that info.  My company is paying my moving expenses (the move is for a promotion/raise), and my plan was actually to, as you mentioned, simply fund the 2013 Roth (for now) and wait until the house sold to fund the 2014 Roth and extra debt payments. 

Cash on hand is about risk tolerance. Some people (like me) stick with the $1,000 emergency fund. Others plan a 3-6 month emergency fund. How stable is your job? What's your positive monthly cash flow?

My job is very stable, and I see what you're getting at w/ possibly being overly conservative with the emergency fund.  I hadn't realized it before but, from what I've read, it sounds like you can withdraw principle from your Roth penalty-free??  If this is the case, I believe you're probably right in saying that there's no real point in holding onto the savings bonds at this point in my life.

aj_yooper

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Re: Advice for bonds/Roth/debt
« Reply #5 on: December 22, 2013, 03:46:28 AM »
After you sell your house, I would use the CDs to pay off the higher interest SL debt.  Then, I would max out the 401k before doing the Roth if you are above the 15% tax bracket. If you are above 15% bracket, I don't think a Roth is a good move if you plan to early retire and will end up in the 15% bracket(or lower).