The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Puzzled_Collection on July 01, 2018, 11:29:40 AM
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Hi. Apologies for the lengthy post. There's a lot to get off my chest.
In the last two years I've paid off around $65,000 of debt. That includes a car, bigger payments on a second car, some student loans, and a ton of credit card debt. I've got $40,000 in debt remaining. That's $9,500 left on the second car and the rest are student loans. The interest rate on the car is 5% (although the remaining interest is $700 if I pay the minimum). The interest rate on the student loans varies based on group but for the biggest loans it's around 3 to 4 percent.
I currently have $9,000 in cash, $2,000 in a brokerage account, and another $10,000 or so i can get from exercising some stock options. (That's $10,000 after taxes and fees). So around $21,000 in money I can access today, with another $35,000 in stock options/RSUs that are going to vest over the next two years.
My car payment is $300 and my student loan payment is $360. My other expenses are very low since I currently live with my parents. When I include transportation to work, phone, gas, some food, etc, my monthly expenses come out to around $1100 to $1200 a month. Let's say $1400 to include some spending on fun. My post-tax income is currently around $65,000 a year not including the stock options / RSUs that are going to vest over the next two years.
The problem is that I'm becoming severely burned out at work and in life in general. I attribute this to the amount of debt I've paid off over the last two years and the amount of money I wasted before coming across Mr Money Mustache and leanfire and etc.
I'm struggling between deciding if I should keep on pursuing debt repayment vs investing heavily now. If I use $20,000 of my savings to pay off the second car and a large chunk of my student loans, my remaining monthly expenses would be more than covered by the remaining $1,000 in my bank account until I get another check from work. Should I do that? And then keep on heavily repaying debt until I'm debt free?
Or should I instead resort to paying minimums on all remaining debt...and just sock away a shit ton of money into investments? If I invest all the money that would otherwise go to servicing the debt, in a year from now I could potentially have $100,000 saved. And then in another year, close to $200,000 saved. Whereas if I pay off half of my remaining debt now and then pay off the rest of the debt over the next 4-5 months, it'll take me much longer to get to $200,000 saved. I'd also be paying a much higher tax rate on the stock options I'd be exercising for debt repayment, unless I hold on to them for a year and exercise/sell them then. That makes me think I should just start investing my direct income heavily and then in 3 years when all my stock has vested and when I can sell it at the capital gains tax rate instead of the income tax rate, it could pay off my remaining debt for me.
Normally I wouldn't be in a rush to save up that much money, but since I'm single and since my expenses are low and since I'd like to get my own place soon I reckon that it makes more sense to start building up investments now and take advantage of the strong economy while I'm still living with my parents.
My ultimate goal is to have enough money coming in off of investments that I'm free to do whatever I want, even if it means working on my own software at home or starting some other random business. I want to be my own person. I'm getting physically sick and tired of going into the office and working on meaningless stuff. Should I just stick with the original plan of paying off my debt, saving up an emergency fund, saving up 25% for a starter house, and THEN invest? Or is the market hot enough that I'd be missing out on a ripe opportunity to really grow my net worth faster?
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I'll be honest, I didn't read all of that. However, this appear to be a classic invest vs. pay off debt scenario. Unfortunately, nobody can answer that question for you because the market is an unknown. Do what you think is right, but just know that the market goes up and down.
You probably expected someone to ask about the second car, so I won't disappoint. Do you need a second car? At your parents house?
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Finish the debt. You're less than a year out. It will never be easier to do it than it is now with your living expenses so low.
Re: the hot market, everyone here will tell you not to time the market. Doing the right thing for you will always be the right choice vs trying to time the market. Plus, let's been a very flat year for stocks (at least here in the US), so it's not like you're missing out on some crazy returns at the moment.
If I were you, I would finish the debt, save the emergency fund, and then start investing and saving for a house at the same time.
Also, it sounds like you have two cars. Would some of your debt problem go away if you sold one of the cars?