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We do have 22k cash in our savings and checking combined. After reading MMM for the last couple weeks, I realize that is too much. How do we properly utilize that?
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One car (Ford Escape) - 9k loan at 4 years @ 2.4% (considering paying this off with cash in savings) Just bought this a couple months ago.
Student Loans- My wife owes 22k@5%. I owe 26k @ 6.5%. Monthly payments are $550. I went back to school late and graduated May of 2015. My wife graduated from grad school two years ago. As of right now, my student loans will end in 2025. My wife will be done in 2022. Obviously, we would like to accelerate that.
Questions:
1) With about $1900 per month "leftover" should we throw that at the student loans? Invest more in retirement/investments? A little bit of both? Toss it at the mortgage?
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I don't think you should use your savings to kill the car loan. I understand that this is the Dave Ramsey theory of "snowballing" - killing your smallest debt first for the psychological boost of seeing it go away. But the better way is to ask the more mathematically savvy question, which is - how can you make your spare dollars work the hardest for you? Throwing $ at the car loan is going to buy you 2.4% annually on $9k. That is not a lot of purchasing power. The tax savings of maxing out a 401(k) + a lifetime of growth or 6.5% savings on $22k are way better buys for that same amount of money.
If it were me, I would do the following:
1) figure out how much cash I *really* need hanging out in checking. For me, I keep about 2/3 of a month's worth of expenses in there. It's enough to always keep me a paycheck ahead on regular expenses. When unexpected expenses come my way, I use my "springy debt" of my credit card (always paid in full) to buy me ~45 days, which is about 3 paychecks. This gives me the time I need to move money around to cover the unexpected expense (for example, by turning off my automatic direct deposit to my brokerage account for a paycheck or two). If it's a really big expense, it gives you a few weeks to line up a home equity loan or something similar, with a much lower interest rate than the credit card.
So, let's say you find you decide you only really need $2k in your checking account - that gives you $20k to work for you, as well as $1900/mo (without adjusting your lifestyle at all, which I'll let other people focus on).
2a) Send that $20k immediately to your 6.5% student loan. This will mean that your monthly student loan payment should drop significantly pretty soon - then you'll have even more than $1900/mo lying around for you to put to work for you.
2b) Increase your contributions to your 401(k)s by a lot - like, $1500/mo or so or unless you hit the maximum contributions.
3) with the extra $400 lying around each month, + whatever you save in loan payments after your loan is dead, start making extra payments toward your wife's 5% student loan.
4) after both student loans are dead, send all extra $ each month to a taxable brokerage account (ideally via direct deposit, so you never see it or take it into your budget).
5) continue paying the house and car according to the normal payment schedule. The interest rates are low enough that I think it's to your advantage to leverage that debt to free up investments. Note that for the mortgage, you are JUST on the edge where a lot of reasonable people disagree about whether you should make extra payments or not - under 4% it seems like you should definitely pay on schedule, and over 4% it starts making more sense to pay ahead. So, that portion of it should be according to your own comfort level. For the car, keep capitalizing on the 2.4% interest rate and send your money to more useful places.