Situation analysis - where to put cash?

[Adam5oh]

Greetings all! I’m new to the world of PF blogging but have been a finance geek since I moved out on my own and realized I needed to keep track of my money if I had any hope of not being poor. I wanted to throw my situation out there for some feedback on options and next steps. I have the feeling this post will turn into a rather lengthy novel so here are the cliff notes for those short on time:

We have 12K or so in a high yield savings account and I’m trying to make better use of the cash. Our highest rate debt is the mortgage at 3.375% but there is a car loan at 2.95%, $293 monthly, $4800 balance. No CC debt. 401ks and IRAs are not maxed. Do we pay off car loan, fund IRA, or keep liquid?

For those that are interested in the details, don’t say I didn’t warn you.

We are about to turn 31 and just got married. When we met she had 5 student loans with rates between 2.14 and 7.65 as well as about 10k in CC debt, and had purchased a home in 2009 with a loan of $187k at 5.125%. Since then we have eliminated her CC debt and are just about to pay off the 3rd of 5 student loans so that all that will be left is $14k at 2.14%.

Last November we did a cash out refi to get $203k at 3.375%. We used the cash out to put on a new roof, pay off $4500 in student loans at 6.5%, and fund some wedding expenses. We are currently paying biweekly on the mortgage and have about 23 years to go at this rate.

In 2011 we bought a 2005 4runner, getting a 15K loan at 2.95%, $293 monthly for 60 months. I’ve made some extra payments on that and we are set to pay off the $4850 balance in 17 months at the minimum rate.

Last year we got combined raises of about $600/month (we each make $70k/year) and decided to put in a new pool / patio. At the time I owned 2 other cars free and clear but rather than go the home­equity or unsecured route at 6­9%, I went through my credit union where our 4runner loan is and was able to borrow $30,500 at 2.25% for 48 months on the cars (2004 3­series and 1997 911). So our total debt picture now looks like this:

Student loan...$13,900...2.14%...$264/mo
Mortgage........$201,581..3.375%..$1032/mo+$268 escrow 4runner...........$4,856......2.95%....$293/mo
BMW..............$8,377......2.25%....$230/mo
911.................$15,965.....2.25%...$437/mo

So yes, we spend an awful lot on car loans, but the last two are more like home improvement loans and our refi appraisal was $35k higher than what she bought the home for in 2009.

For the past couple of years I’ve banked $1000/month into my savings account (Was ING, then E­trade, now Discover). Unfortunately I was using this account for non­mustachian things like purchasing the 911, then purchasing a boat, then the engagement ring, then funding the pool, then the wedding. The good news is we have made a ton of progress in the last couple of years towards accomplishing the things we wanted to do and I should be able to use this money more wisely going forward. I put 3% into my 401(k) and get a company contribution of around 6% (no matter what I put in). She puts $50/month in a Vanguard IRA which I will probably increase to $225 now that her student loans are more manageable. I put $4K into an IRA at the worst possible time (Feb 2007) and have just now seen that balance come back to where I started, without making any other contributions. This experience has soured me on the stock market quite a bit but I realize that I need to find a way to take advantage of it.

Her IRA has about 10k in it, there is 4K in mine, and I have 32K in my 401k. I know that we have a lot of lifestyle changes that we could make that would have a huge impact on our savings, but that is something that we are going to start working on together. Short­term I’m trying to figure out the best use of our cash. We have the $12k sitting in savings that I’d like to do something with. Both of our jobs are stable but I’d like to have access to some in case of emergencies. $5k of the $12K was part of our wedding gifts and is earmarked to pay for an upcoming 2­week trip to Italy. So that leaves about $5k or so that I’m comfortable putting to work for us, the only question is how. Pay off the 4runner loan? Only saves us $102 in interest but generates $293 in cash flow. Fund an IRA? Increase 401k contributions? We should be due for modest raises soon (3%?) that I was considering putting straight into 401ks.

I’m very interested in doing some P2P as I think I’d enjoy managing it and wouldn’t freak when some dictator starts yelling and the dow tanks. Might just throw $250 into 10 notes to see what happens, or go with $1000 to diversify a bit. Could even go with the whole $5k as another IRA account through them.

So thank you to whoever has stuck around this far, I look forward to any feedback.

Cheers, Adam

[JamesL]

I'm sure I won't be the only one to mention this, but I'd recommend thinking of different cars. The bmw and porche are expensive to maintain, and the 4 runner drinks up gas like nobodys business. Have you considered buying a couple used cars in the 5k range? You can get a Camry or the like, around 10 years old for about 5k each.

Something I'd like to mention is if you invest in index funds of the S&P 500, or the DOW, as long as you don't panic you're almost guaranteed to make money in the long run. Historically the prices have gone nowhere but up. Yes they crash, but think of a crash as a great time to buy.

I'd try to max out your 401ks and at least max out your Roth IRAs, and HSA accounts.

If you sold all your cars, put all your money into paying off the student loan and the purchase of a couple dependable used cars, you could probably be bringing in another $800+ a month just from not paying those payments to the cars/loans. Especially since you're gaining less interest in that savings account.

Out of curiosity, what's your savings %?

Edit: To give you an idea of what I like to invest in:
VGSLX, VTI, VYM, VFIAX

[Adam5oh]

Ha, yeah I certainly have a weakness for vehicles. Taking the boat out to relax at the sandbar is really all I ever want to do with my life, so that isn't going anywhere. Need the truck to tow the boat but we're pretty good about taking the car most other times. Recently picked up a scooter that I use for all of my running around locally to the store and whatnot. I do all of my own repairs so maintenance isn't a killer and driving is another one of my passions so the cars need to be fun. Not that fun can't be found for 5k. I will likely put the Porsche up for sale, I'm just not in much of a hurry since it seems to be increasing in value according to the listings I've been seeing.

I've decided to put $750 into LC to see how that works out and start paying off large chunks of the 4runner loan. With that gone we'll see what we can do with the extra $293 each month. I also upped her IRA from $50 to $200 a month. If we see a swing in the market maybe I'll do a lump invest so we're on track to hit the max level this year.

Pre-marriage I was saving around 25% and she was putting everything extra into paying off her debt. She had 10K in CC debt when we started dating but since then that has been paid off along with 10K in 6-7% student loans. I've always thought we were doing OK but it is clear that we can do better and this place is great encouragement.