Topic Title: Reader Case Study - What to do about the car and this extra cash?
Life Situation: 28 and single, living in Pittsburgh
Gross Salary/Wages: $73,500 (before any bonus, but bonus is not guaranteed), paid semi-monthly = $3,062.50
Pre-tax deductions: Per paycheck:
- Current 401k contributions (10%) = $306.25
- Insurance (dental, medical, vision, life) = $37.90
- Charity (United Way) = $4.50
- Company match on 401k is (3.5%) = $107.19
Adjusted Gross Income: I think this is $2,365.20/month, please let me know if that's wrong.
Taxes: per paycheck
- Federal = $671.48
- State = $125.35
- Local = $2.16
Current expenses: Monthly spend on food, activities, etc. is not my main focus at this point. Once things get back to normal (ie. one house) I'll track for a few months and maybe post a new case study if (when) I need some face punches. My focus here is on the mortgage and the car.
I am in the process of selling my former home. I estimate I'll make around $30k if all goes well. All mortgage info below is for the new house.
P&I = $701.02
MI = $64.13 - this cannot be removed, even if I reach 80%, until 2 years of on-time payments have occurred. I closed last September and payments started in 11/14.
T&I = $257.64 (local, city, county)
HOA Fee = $209 (this is a condo in townhouse form, includes all outside maintenance)
Assets: About $51k in Vanguard Target Retirement 2050. This is split between an old 401k rollover, a traditional IRA, and a Roth IRA. I also have about $3,200 in stock (a gift) that I need to sell and put into an index fund. I currently have just under $8k in my checking account.
Liabilities: I am almost finished paying off my car loan (so many face punches here) for the car that was new in 2011. It's a 2012 Hyundai Accent hatchback. My last payment will be in 10/15 and payments are $324.88/month.
I currently owe $1.1k on my credit card that gets paid in full each month.
Specific Questions:
- Someone talk me out of taking a celebratory "you sold the house" dive trip in Indonesia.
30k
- What is the best use of the ~$30k? My current plan is to use it to open a new checking account to get the new account bonus before doing something else with it. I'm working on finding the best option now that won't require me to let the money sit for months. I'm also planning on funding this year's Roth contribution from this money.
- Should the 30k be dumped into an index fund? At least some part of this money will need to go into an index fund, do I put it into the target 2050 as well or just VTSMX?
House
- Should part of the 30k be dumped into the house to get to the magic 20% more quickly? I am planning on increasing my principal payment once the other house is sold. Right now I just put in an extra $25 a month. Keep in mind that I can't get rid of the PMI until 11/16. Or is there a "right" amount of additional principal to put into the house? If I put a lump sum into the house, is there any advantage to having the mortgage recast?
- Is it worth refinancing? My rate is 4.250% on a 30 year. I like the flexibility of a 30 year, rather than the 15 year, in case I would lose my job at some point I could cut back on the extra payments.
- I did some remodeling (well... I paid someone to do it before I found MMM) so there are new hardwood floors. This will factor into a new appraisal if I refinance, right? Do lenders let you get your own appraisal and then determine the additional amount you are putting down to get to 20%?
- Do I need to keep a certain amount easily accessible (ie. savings account/CD that ends in April) for taxes next April? I have no idea what the tax situation will be.
Car
- Should I ditch the Accent? It's one of the cars that had the incorrect mileage posted when I bought it. I really like the idea of a used Prius - but I've never bought a used car before and I'm a little overwhelmed. Ideally I would like to spend little to no additional money to swap cars.
- I got a fake handwritten letter from the car dealer saying their inventory was low on my car and the possible value was almost 3k higher than KBB. What is the deal with this? I talked to someone today and they said I could just sell to them and it's not a trade in only amount, but it must be done by the end of July. If I go this route, how quickly can you buy a car from Craigslist?
Thank you! Let me know if I missed anything.