Author Topic: Help! Don't know where to put my money!  (Read 3718 times)

mrigney

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Help! Don't know where to put my money!
« on: March 06, 2014, 01:48:21 PM »
Help me figure out where my money needs to go! We just sold our car to replace with a hatchback to accomodate our growing family. Plan was to use the proceeds from the car sale to pay off a huge chunk of the new car, but now I'm wondering which of 3 options should I really do:

1) Pay off $8k of the $15.9k car note
2) Pay off $8k on the house to get w/in a few thousand of getting rid of PMI (currently $109/month)
3) Put it toward the student loans. This would leave $2.5k in student loans which we could knock out in a few months if we worked at it, thus freeing up $100+ per month.

I'll just give the numbers and then listen. And yes, I know I'll get facepunched for the car purchase. It was a compromise with my wife...it was going to be either get an SUV (and spend $25k up front and get awful gas mileage) or get a Prius for $16k and save on gas. I picked the best available option. Anyway, the numbers:

Net Income: $3,683 + $312 to 401k (that's 6% to get the full 3% company match)

Assets
Cash from Car Sale (2009 Sonata, 85k miles): $8,000 (I separated this out b/c I just bought one car--see liabilities--and sold another one)
Other Cash on Hand: $5,800 (in various checking and savings accounts)
401k (cumulative from current and previous employers): $20,000
Roth IRA: $3,660
House: ~$163,000

Liabilities
House: $148,700 @ 4% (30 year fixed)
Student Loans: $10,555 @ 2.6% (fixed)
Car (2010 Prius, 40k miles): $15,900 @ 2.49% (fixed, 48 months)

Expenses (2014 YTD):
Charity: $215
Groceries: $426
Restaurants: $99
Coffee: $27
Mortgage: $973
Electricity: $160 (coldest winter in 25 years here)
Water: $35
Phone $73
Cable & Internet: $101 (just cut the cable, so this will come down some)
Netflix: $8

Medical: $600 (just had a baby...this should go down for the rest of the year since we just paid the big bill)
Gifts: $14
Misc: $70
Clothing: $18
Haircuts: $28 (I just bought a UMG, so I'll be cutting my own hair from this point forward)
Pets: $19
Kid Related Expenses: $80 (mainly $50/month for a preschool program)
Fitness: $30

Discretionary ("fun" money): $45
Entertainment (dates basically): $20

Car Payment: $352
Gas: $168
Insurance: $66
Car Repairs & Maint: $23
Student Loans: $131





huadpe

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Re: Help! Don't know where to put my money!
« Reply #1 on: March 06, 2014, 02:11:30 PM »
I would pay down whichever of the car note or student loan has higher interest, finish it off ASAP, then pay down the other of those two, and only then look at getting the house out of PMI.

Eric

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Re: Help! Don't know where to put my money!
« Reply #2 on: March 06, 2014, 02:27:43 PM »
Welcome to the site!

You have car debt.  You have student loan debt.  You're wasting money on PMI every month.  But in the mean time, you're giving to charity, eating at restaurants and paying money to exercise.  You need to get rid of these debts immediately!

http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/

But to answer your question, getting rid of the PMI would be my biggest priority.  That's truly wasted money and your other interest rates are pretty low. 

Bookworm

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Re: Help! Don't know where to put my money!
« Reply #3 on: March 06, 2014, 02:31:40 PM »
Welcome to the site!

You have car debt.  You have student loan debt.  You're wasting money on PMI every month.  But in the mean time, you're giving to charity, eating at restaurants and paying money to exercise.  You need to get rid of these debts immediately!

http://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/

But to answer your question, getting rid of the PMI would be my biggest priority.  That's truly wasted money and your other interest rates are pretty low.

That's what I was thinking, too.

Prairie Stash

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Re: Help! Don't know where to put my money!
« Reply #4 on: March 06, 2014, 03:48:30 PM »
I vote $8,000 to house! And take a few thousand from your cash ($5,900). 

109/month=$1,308/year

 I don't understand PMI very well, I'm Canadian (different rules).  It seems incredible to pay that much on top of a mortgage, I would fell incredibly ripped off every month. A $1,300/year surcharge on a $150,000 loan (8.7%), that sounds like robbery. Especially when you already pay the bank 4% for the privilege of owing money.

Correct me if I'm wrong, isn't that equivalent to paying 12.7% interest on your house? (I've never had PMI, this is a real question)



mrigney

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Re: Help! Don't know where to put my money!
« Reply #5 on: March 06, 2014, 07:38:12 PM »
@Prairie Practicality - I think PMI (well, at least the way it works) is the stupidest invention ever. Last time I pulled my credit score, it was 813. Yet I pay that ridiculous $109/month (it was actually lower -- $70/month -- before I refinanced, but whatever...the refi is still saving me money). Meanwhile, the dude with the 620 credit score who happened to inherit $15k from his grandma (or whatever) doesn't pay any PMI, even though he's more likely to default on his loan. But, I digress. Yes, it's $1300/year. It goes away when you get 20% equity, though. So depending on what my house appraised for, I need somewhere around $32-33k in equity in the house. Right now I have about $13-15k.

So we have 3 votes for PMI, one vote for student loans. I've been leaning toward PMI, even though that means keeping the car loan around (the student loans, while a debt, don't "bother" me as much per se...not sure why...the car loan disgusts me, but again...it was a compromise...my marriage means more than a car loan @ 2.5%:-)).

Yes, I know that eating out needs to be cut down (we just had a baby in February...we precooked as much as we could, but sometimes when your wife is 9 months pregnant w/a 2 year old running around, dinner just doesn't get done). Our savings rate this year is 22.06%. January we spent $50 eating out. February it was $150. It should return more to the $50 level. The charity is rather non-negotiable. I know that's controversial, but we've already cut back on it. So yes, eating out has to decrease. Coffee has to go (it's down from $80/month last year already). Cable is gone as of next week.

What should I do w/retirement savings? Like I said, right now I have 6% going to a 401k (it was 11%...just changed it last week to free up money to pay off these debts). I kept it at 6% to keep the full 3% match. Should I go lower until PMI is gone? I hate throwing away free money. I also just started putting $85/month toward an employee stock purchase program. The company matches 25% of what I put in (so that $85/month becomes $106 invested). Should I can that for now? Basically, how much of my investment resources should I be reallocating toward pay down of mortgage, student loans, and car loans?

Thanks for the help!

Prairie Stash

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Re: Help! Don't know where to put my money!
« Reply #6 on: March 06, 2014, 08:00:56 PM »
I would keep the 3% match. That's the easiest money you'll ever earn.
A 25% stock top up? Sounds fantastic to me. To my ears that's an easy 25% return, my greed would be maxing that every month. Eventually I might sell some shares and diversify, it's not a good idea to have too much of your portfolio tied up in your company. Remember the Enron folks? I remember hearing stories about people being laid off and losing all their retirement funds - which were Enron stocks.
Thank you for clarifying PMI. I still vote house, it's 4%. With a PMI elimination bonus once you achieve 20% equity. I bet you're cutting expenses right now, can you make it happen by December?

mrigney

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Re: Help! Don't know where to put my money!
« Reply #7 on: March 06, 2014, 08:18:06 PM »
Yeah. The 25% stock bonus is pretty nice. We can put up to $184/paycheck into stock (so $400/year, which would mean $100 in free money every month). There are blackout periods during the year when we can't sell, but generally we can sell anytime through Fidelity (but they charge $40/sale, so don't do it too often). I just became eligible this month, but it's tempting to max out (average return of company stock over last 10 years = 17%). If nothing else, investing in the stock is forced savings. I doubt the stock goes down more than 25% even in a bad year, so the chances of me losing money are relatively small.

I think I could get close to no PMI by the end of the year. Our goal for this year is $3.1k/month in expenses. That'd leave me ~$600/month to play with (if I keep 401k @ 6%). That's $6k extra toward mortgage the rest of this year plus the $8k I have laying around. That'd get the mortgage balance down to $133.5k (in theory), which would be about 18%.

So I'm gathering that that's the consensus. Throw this money and any extra toward the mortgage, then attack the student loans, then the car note. All the while keep investing 6% in the 401k, and possibly, if I'm feeling aggressive put money into the stock program for the immediate 25% return.

ThermionicScott

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Re: Help! Don't know where to put my money!
« Reply #8 on: March 06, 2014, 09:19:48 PM »
As much as I dislike car loans, if I were in your position, I would definitely kill the PMI first and then bump my 401(k) contributions to lower my income taxes, letting the car and students loans ride.  2.49-2.6% is cheap money in the grand scheme of things, and you can get better returns elsewhere.

Weedy Acres

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Re: Help! Don't know where to put my money!
« Reply #9 on: March 07, 2014, 03:35:29 AM »
No one has mentioned this yet, but groceries look very high.  Like double what they should be.

Why not spend some of your weekend time working with the wife to make some meals you can freeze for the nights she's too tired to cook.  Or have stuff on hand for quickie crock pot meals.  That way you can avoid the pull to eat out.

I'd do something like only allow yourself to contribute to your ESPP if your spending for the previous month is less than X.  That way when you're tempted to eat out or spend on whatever, you are thinking "am I willing to give up a 25% return on this money to buy/eat this?"  That might help on the psychological front.

mrigney

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Re: Help! Don't know where to put my money!
« Reply #10 on: March 07, 2014, 07:24:23 AM »
@Weedy Acres - you think $425 is twice what a family of 3 (now 4) should be spending. I know that some people talk about spending $300/month. But $215? Just don't think that's doable (and I've had this conversation with other mustachian/frugal people who live here). I can give you a dollar by dollar breakdown of our food costs for Jan/Feb...there's not a whole lot more to cut. We shop at Costco and ALDI. Our predominant meat is chicken thighs, we rarely by extras. We eat quinoa, etc, etc. Could we shave another $50 off? Maybe...if we put in a lot of effort. But half? Just not seeing it. And it's not for lack of trying.