Hey all,
I've been following this and many other FI and PF blogs over the last two months. It's completely changed my perception of spending/saving and what I want to do with my future. Because of this, I feel over whelmed and confused as to what is the right path.
Here's some background.
Originally purchased home for $475k with a 380k mortgage at 6.75%
Refinanced in May '11 for 365k at 3.75% (5/1 ARM, I'm 1 year into) but the LTV ratio was 90% because of real estate crash so the new mortgage includes PMI at $310/month. Monthly housing costs are $2857; breakdown is $570/principal, $1100/interest, $310/PMI, $887/escrow for insurance and taxes.
Taxes were $9,500 for 2011, we just had a reassessment so not sure what's going to happen with that, I'm hoping they go down a bit but I'm doubtful.
My wife and my combined income is ~$9,400/month (25% tax bracket).
Assets look like this.
Cash Savings $45k
Checking varies between 4-12k /month depending on bills.
401k and 403b totals about $20,000
401k/403b contributions; me $5,700/year wife $1,800/year (she's in public education so she pays into a pension as well).
No taxable investments yet.
No IRAs.
Current expenses can be kept at or near $5k/month including mortgage payment. We are really trying to shoot for 45-60% savings rate per month. March was a successful month in this aspect, I'm hoping to recreate it going forward.
My wife's job is secure but we'd like to put her into a doctoral program to advance her career. My job is less secure as I'm in private industry.
Our monthly expenses usually run about $4000-$5000 with the mortgage included. We've done some healthy trimming to get that down from $6-$8/month.
So my question is, what do I do with this monthly savings?
I have a few options.
1) Pay down the mortgage to 78% (balance of $299,000) in order to drop the PMI then refinance in 5 years when the rate changes
2) Pay down the mortgage to drop the PMI and refinance to a 15year and aggressively down the mortgage and knock it out completely in 5-7 years.
3) Do nothing with the mortgage (aside from refi in 4 years) and just invest in a Vanguard index fund.
4) Max 401k, this will bring our monthly income down about $2,100. But my options for funds in the 401k are limited. My wife's 403b is managed by AXA and mine is managed by Paychex.
I'm sure some combination of the right way to go. I'm open to ideas.