Author Topic: Decisions, Decisions...Seeking advice from fellow Mustachians!  (Read 2750 times)

American_Canadian

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Hello Fellow Mustachians,

I've been following this forum for many years now and want to start off my thanking everyone for their contributions to this board. Your advice, tips, and strategies have helped me immensely since I started reading this forum.

I am turning 30 this year, and am a Canadian living in Central Florida since last year. I had moved down for work, and also for my wife (we got married towards the end of last year). I work in IT as a Consultant and travel to a project location every week for months at a time. My wife and I have no kids yet, but are intending to start in the upcoming year. We both grew up in blue-collared families and luckily for me, she understands how to budget and save money.

We have worked hard to build up our cash savings and are very fortunate to be in a position to get ahead in our lives. However, I'd like to get the opinion of the Mustachian community on what the best course of action is for us. With our cash savings, we are looking at the following opportunities:

  • Pay off our remaining mortgage, and contribute more to TD Ameritrade account with savings
  • Purchase a rental/investment property (and use rental income to contribute more to TD Ameritrade account
  • Contribute more into our TD Ameritrade account and add to our dividend portfolio

Current Situation:
My income: $105K (90K base, 15K bonus, with opportunity for an additional $8K each year based on performance of company's shareprice)
Wife's Income: $87K

Assets/Liabilities
Original Home Purchase Value: $250K (current home value likely around $225K)
Mortgage Remaining: $167K

CAD Cash - $130K (from my house sale before I move down, but due to the weak CAD dollar I opted to leave this cash in Canada until the CAD dollar rebounds)
USD Cash - $104K
US CD (due 12/2016) - $21,056
TD Ameritrade (joint) - $74,589 (roughly 12 dividend aristocrat  stocks, continuing to contribute roughly $3-4K each month)
My 401K - $16,345.27 (aiming to max out each year)
Wife's 401K - $130K (aiming to max out each year)
My Roth IRA - $11,883 (just started last year)
Wife's Roth IRA - $11,995 (just started last year)
Company shares - ~$18,000
Pension from CAD company - $23,130

Total Assets: ~ $765K
Total Liabilities: ~$167K (we have no other debts beside the mortgage)
Net Worth: ~$598K


Goals:
- FI by 45
- Start saving for family
- Continue to travel each year (roughly 1-2 large trips each year)

Look forward to hearing your advice/input/feedback. Thank you fellow Mustachians!

Mother Fussbudget

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Re: Decisions, Decisions...Seeking advice from fellow Mustachians!
« Reply #1 on: July 05, 2016, 10:58:35 AM »
This thread has been read ~200 times, and no responses...  BECAUSE...

We're accustomed to helping people with their INCOME vs. EXPENSES, so what do you spend monthly vs what's your monthly take home pay?  You should consider re-phrasing this as a 'Case Study' (see the sticky topic at the top of "Ask A Mustachian").

Without that data, it's hard to give that 'outside opinion' that might be so useful.  We can say GENERAL things, such as... save in the following order... or "don't pre-pay mortgage principle since that money could be more productive invested in something that generates returns WITHOUT having to sell-your-house".  Or you may want to have a paid-off-mortgage by the time you reach FIRE, so you could calculate how much extra per month you would have to pay down to reach $0 mortgage by FIRE date.

But we can't pass out face punches like:  "Cut your cable - paying $200/month to watch cat videos is silly", choose a cheaper cellular provider, etc.

Save in the following order:
1) Max out your 401k/403b contribution to get the dual benefit of saving pre-tax dollars, and reducing taxable income.
2) Max out your HSA account (must have a HDHP to have an HSA account).
3) Max out a T-IRA or ROTH IRA contribution.
4) Invest in a taxable account.
5) Add $100-to-$200 extra principle payment each month.  OR... calculate how much you would need to pay on the mortgage to pay it off just before you reach your FIRE date...  IF that's something that you want to do.

American_Canadian

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CASE STUDY: What to do with lump sum cash?
« Reply #2 on: June 27, 2017, 07:20:24 PM »
Can't believe it's been a whole year since the original post. Time flies! Wanted to give y'all a quick update:

- Wife and i had a baby girl earlier this year (she has been a blessing)
- We bought a home and decided to rent our existing house
- Income increased slightly from raises:

  • Mine: $120K (98K base, 22K bonus), with additional 50K in RSUs paid out over the next 3 years
  • Wife's Income: $92K

Primary House Value: $350K,  Mortgage: $257K
Rental Property Value: $236K, Mortgage: $160K  (Rental income is $1750/month, monthly payments + HOA = $1650)

Net Worth: ~$770K

We still max out our 401K and Roth IRA accounts, and contribute roughly $2K-$2.5K a month to our brokerage account.

We have roughly $160K in CAD that we are waiting to convert over once the CAD $ strengthens (whenever that may be).

Question: What do we do with that money once we convert it over? We already have $15K in emergency funds banked.
Option 1- Pay off  entire mortgage remaining on rental home and invest the monthly rent income in the brokerage account (or increase mortgage payment on primary)
Option 2 - invest the funds in the taxable/brokerage account
Option 3 - Purchase another rental property

frompa

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Re: Decisions, Decisions...Seeking advice from fellow Mustachians!
« Reply #3 on: June 27, 2017, 08:26:11 PM »
Congrats on becoming a parent! They're fun at every age.

As for your question, what you should do depends on your values and perspective. I have always found most security in being debt free, so I'd dump the mortgage.  You have plenty of time to add to your investments, whether through purchase of additional rental properties or by other means, later.  But none of us has a crystal ball, so exercise your best judgment -- there are many "right" answers to your question. 

Laura33

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Re: Decisions, Decisions...Seeking advice from fellow Mustachians!
« Reply #4 on: June 28, 2017, 07:15:30 AM »
1.  Why do you need to wait to invest the CAD?  Can't you put that money in a Canadian investment now?

2.  What are the mortgage rates?  FWIW, I am very debt-averse and always pre-paid my mortgage.  Then I got a 15-year at 2.875% -- that is so low it is basically free money, so there is no way I am giving them a penny ahead of time. 

3.  Before you pay off a mortgage, run the taxes.  Remember, your rental income counts as income, and your mortgage/HOA are expenses that you get to deduct from that.  So if you pay off the rental mortgage, that means you will be reporting more income and paying more taxes -- which, at well over $200K/yr, are going to be high.  If I were you, I would download TurboTax (or equivalent) and run it assuming different payoff scenarios before deciding (and don't forget depreciation).

RetiredAt63

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Re: Decisions, Decisions...Seeking advice from fellow Mustachians!
« Reply #5 on: June 28, 2017, 07:21:14 AM »
Canadian economists don't see the dollar coming back to par, or anything close, any time soon.  So if you think they have a clue, there is no point waiting to convert $CAN to $US.  Or you could invest those in something up here?

American_Canadian

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Re: Decisions, Decisions...Seeking advice from fellow Mustachians!
« Reply #6 on: June 28, 2017, 07:49:39 AM »
1.  Why do you need to wait to invest the CAD?  Can't you put that money in a Canadian investment now?
I'm no longer a resident of Canada, as I have moved down to the states and got rid of all my other possessions/assets when I moved down so that I am no longer a resident (for tax purposes). I wish I would have held on to my home during the real estate boom these last few years! All I have now is my cash in a Canadian bank account. I am unable to open up any new accounts.... :(

2.  What are the mortgage rates?  FWIW, I am very debt-averse and always pre-paid my mortgage.  Then I got a 15-year at 2.875% -- that is so low it is basically free money, so there is no way I am giving them a penny ahead of time. 
My primary house is 4.125% (30 years), and my rental home is at 4.25% (16 years remaining)

3.  Before you pay off a mortgage, run the taxes.  Remember, your rental income counts as income, and your mortgage/HOA are expenses that you get to deduct from that.  So if you pay off the rental mortgage, that means you will be reporting more income and paying more taxes -- which, at well over $200K/yr, are going to be high.  If I were you, I would download TurboTax (or equivalent) and run it assuming different payoff scenarios before deciding (and don't forget depreciation).
Thanks. Definitely something to consider here. Will have to discuss with my accountant on the various scenarios.

Thanks for your feedback!!

American_Canadian

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Re: Decisions, Decisions...Seeking advice from fellow Mustachians!
« Reply #7 on: June 28, 2017, 07:52:07 AM »
Canadian economists don't see the dollar coming back to par, or anything close, any time soon.  So if you think they have a clue, there is no point waiting to convert $CAN to $US.  Or you could invest those in something up here?

Unfortunately I am unable to invest in anything up there as I am unable to open up any accounts as a non-resident. *sighs* I wish I could do something better than to let my money sit there in a regular savings account and lose out to inflation.

I suppose I can still purchase real estate up there, but I'd rather stay out of that real estate market up there at this time..

American_Canadian

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Re: Decisions, Decisions...Seeking advice from fellow Mustachians!
« Reply #8 on: June 28, 2017, 08:00:52 AM »
Congrats on becoming a parent! They're fun at every age.

As for your question, what you should do depends on your values and perspective. I have always found most security in being debt free, so I'd dump the mortgage.  You have plenty of time to add to your investments, whether through purchase of additional rental properties or by other means, later.  But none of us has a crystal ball, so exercise your best judgment -- there are many "right" answers to your question.

Thanks! It really puts life/your goals into perspective when you have that first child...

I guess whichever option I choose is a 'good' option since it's a net positive, however I'm always racking my brain/driving myself crazy trying to always choose the 'best' option. I'm inclined to pay off the mortgage in order to have that piece of mind for the family, and to invest the monthly rental income into the brokerage account, but the go-getter in me wants to either play monopoly (and keep buying more properties) or throw the $160K into the brokerage account and grow the dividend account...